GEA Group Aktiengesellschaft

Annual Report 2008

GEA Group: Key IFRS figures Change (EUR million)

2008

2007

(%)

Order intake Energy and Farm Technology 1

1,645.6

1,991.2

-17.4

Order intake Process Technology

3,346.6

3,432.1

-2.5

Order intake GEA Group 1

4,983.9

5,417.0

-8.0

Revenue Energy and Farm Technology

1,818.6

1,648.3

10.3

Revenue Process Technology

3,338.1

3,159.0

5.7

Revenue GEA Group

5,179.0

4,856.0

6.7

Order backlog

2,450.7

2,698.7

-9.2

EBITDA

585.9

480.7

21.9

EBIT Energy and Farm Technology

165.5

139.8

18.4

EBIT Process Technology

369.7

301.7

22.5

EBIT core segments

535.2

441.5

21.2

Results of operations

in percent of revenue EBIT GEA Group in percent of revenue Earnings before tax Net income/loss on continued operations

10.4

9.2

-

504.2

401.1

25.7

9.7

8.3

-

458.8

351.6

30.5

349.0

237.2

47.1

-248.0

46.3

-

101.0

283.5

-64.4

Total assets

5,128.3

4,748.0

8.0

Equity

1,455.4

1,413.7

3.0

Net income/loss on discontinued operations Net income/loss Net assets

28.4

29.8

-

Working Capital (balance sheet date) 2

in percent of total assets

790.4

625.2

26.4

Net position 3/4

-60.2

61.3

-

4.1

-4.3

-

388.9

181.1

114.8

373.6

273.2

36.8

2,884.5

2,559.1

12.7

17.5

15.7

-

165.6

129.3

28.1

21,327

19,344

10.3

Gearing (percent) 3/5 Financial position Cash flow from operating activities Cash flow from operating activities (adjusted)

6

Investment (balance sheet date) 7 ROCE (percent)

8

1) Including large order contracts from South Africa totalling approximately EUR 340 million in 2007 2) Working capital = inventories + trade receivables trade liabilities - prepayments received 3) Including discontinued operations

Capital expenditure in tangible and intangible assets Employees GEA Group (balance sheet date) 9

5) Gearing = net position / equity x (-1)

GEA Group’s share (EUR) Earnings per share on continued operations Earnings per share on discontinued operations Earnings per share Weighted average number of shares outstanding (million)

4) Net position = cash and cash equivalents + securities - bank debt

1.89

1.26

49.9

-1.35

0.25

-

0.54

1.51

-64.1

183.9

187.3

-1.8

6) Excluding net cash flow from operating activities of discontinued operations 7) Investment = fixed assets + working capital 8) ROCE = EBIT / Investment 9) Full-time equivalents (FTEs), excl. apprentices / trainees and inactive employees

Contents

Management Report

Corporate Governance Report

Financial Statements

2

Letter to Shareholders

8

GEA Group‘s Shares

14

Boards of GEA Group Aktiengesellschaft

16

Key trends in 2008

16

Aggregation of Group and parent company in the management report

17

Organization and structure

19

Operating activities

30

Discontinued operations

31

Group business performance

45

General statement on business performance

46

Employees

49

Assets, financial positions and result of operations of the GEA Group Aktiengesellschaft

55

Report on opportunities and risks

64

Events after the balance sheet date

65

Outlook

70

Corporate Governance Report

74

Remuneration Report

84

Consolidated Balance Sheet

86

Consolidated Income Statement

87

Consolidated Cash Flow Statement

88

Consolidated Statement of Changes in Equity

90

Notes to the Consolidated Financial Statements

197

Assurance of the legal representatives

198

Independent Auditors‘ Report

199

Report of the Supervisory Board

204

Directorships

208

The GEA Group world wide

209

Quarterly key figures

see inside back cover for index

GEA Group Annual Report 2008

1

Letter to Shareholders

Jürg Oleas, Chairman of the Executive Board, GEA Group Aktiengesellschaft

Dear shareholders, Another successful but also challenging year for the GEA Group is now behind us. Despite the deterioration in the economic environment, we raised earnings per share from the continued operations by around 50 percent to EUR 1.89 as a result of higher revenue and a considerable increase in the Group margin of 148 basis points. We achieved record earnings on Group level with EBIT of EUR 504.2 million and EBT of EUR 458.8 million. These results represent year-on-year increases of almost 26 percent and 31 percent respectively. The uncertainty in capital markets accompanying the global financial crisis in the second half of 2008 also impacted the GEA Group share. The Group nevertheless stands on a solid basis and is well equipped to meet the future. As a result of the success of our business last year, the Executive and Supervisory Boards will propose to the Annual General Meeting a year-on-year doubling of the dividend to EUR 0.40 per ordinary share. Since this extraordinarily successful year reflects the performance of our employees, the Executive Board has decided to make an one-off special payment to the workforce totaling EUR 5.4 million (excluding senior management levels).

Securing the future The German mechanical engineering sector can look back on one of the longest boom periods in post-war history, having reached record levels of performance in 2008. Since the summer of 2008, however, dire news have proliferated. In this environment, GEA Group’s order intake in the fourth quarter of 2008 was down by around 14 percent com-

2

GEA Group Annual Report 2008

Letter to Shareholders

pared with the average for the first nine months. As early as November 2008, this prompted us to implement measures to counter a fall in earnings and to conserve liquidity. These range from cutting the use of temporary help and the introduction of short time working, all the way through to, unfortunately, the laying-off of permanent employees. A further round of layoffs will occur during the course of 2009. Overhead costs will also be cut, and we shall focus to an even great extent on operating free cash flow through, for example, optimized working capital management. Measures will also include delaying selected investments in property, plant and equipment. This also led us to bring the share repurchase program that started on October 6, 2008 to an early conclusion. As of the year-end, the Group has at its disposal free cash and overnight deposits of EUR 431.7 million. Our current order backlog is characterized by good margin quality. In 2009, we shall continue to proceed according to the principle that secure orders and margin quality are more important than accepting orders at any price. Our intention is to grow business volumes organically and through acquisitions. In 2008, we acquired companies with annual sales volumes of around EUR 200 million. In general, small and medium-size companies that round out our existing portfolio in technological terms and open new markets remain interesting to us. We shall continue to pursue this strategy in 2009. GEA is currently investing in the modernization and productivity enhancement of its plants around the world in order to emerge from the economic crisis on a stronger basis. A particular project in this respect is the Mechanical Separation Division’s multi-year investment program. As a result of their varied applications, this division’s products have proved to be quite especially resistant to the business cycle over the course of the last 25 years.

People – Our greatest asset At this point, I would like to take the opportunity to thank our 21,327 committed employees and managers. The drive of their daily input forms the key foundation for the overall success of our company. This is why they will once again receive a extraordinary profit participation bonus of around one percent of earnings before tax as an acknowledgement of their performance this year. Of our senior managers, who are excluded from this profit participation bonus, 81 percent have voluntarily participated in our GEA Performance Share Plan by investing their own capital in GEA Group Aktiengesellschaft shares. This provides an impressive demonstration of our management’s confidence in the capabilities and growth opportunities of our Group. One of a company’s most important tasks is to identify the potential inherent in its employees and managers, and to promote and reward these strengths. These are decidedly long-term investments. Our standardized Group-wide “i2m” ideas and improvement management system is providing the Group with valuable new stimuli that have already had a detectable

GEA Group Annual Report 2008

3

Letter to Shareholders

impact on earnings. Also in terms of up-and-coming managers, we are intentionally focusing on internal resources. Success is visible in a sharp rise in the development ratio of our own managers, both across segments and divisions, as well as internationally.

Portfolio management During the years in which it belonged to the Group, Ruhr-Zink accumulated well over EUR 100 million of losses up to 2005. It was only in the years 2006 and 2007 that the company managed to achieve significantly positive results, mainly as a result of high zinc prices. Sharply higher energy costs, the decline in zinc prices and the abrupt collapse of sulphuric acid prices, nevertheless meant there was no longer any commercial reason for continuing the business, so that Ruhr-Zink was obliged to discontinue its operations. The charges at Ruhr-Zink are a result of the write-downs relating to the production plants, the redundancy plan, as well as the costs for the employment corporation. There are mainly further charges for legacy orders for the plant engineering business that required recognition in the annual financial statements. Most of these projects are already in the operational start-up phase. Dear shareholders, the rationalization of the portfolio that has continued for five years has now been concluded with the shutdown of Ruhr-Zink. The rationalization process entailed the sale or closure of around 20 companies relating to the chemicals industry, the automotive supply industry, large-scale munitions manufacturing, as well as plant engineering and zinc smelting. GEA has acquired 30 companies over the same timeframe, of which almost 80 percent address the food manufacturing and beverages industry, or the energy sector, as their main sales markets. Consequently, GEA is optimally positioned to grow further in these markets in the future.

Outlook With the exception of the ongoing court and arbitration court procedures, whose result we have reflected in our accounts according to our current status of knowledge, we regard the painful separation from the legacy businesses of the Metallgesellschaft and mg technologies as largely concluded. However, significant cash outflows from provisions are still due in 2009.

4

GEA Group Annual Report 2008

Letter to Shareholders

With a decline of 20 percent, our January’s order intake was significantly better than the 42 percent decline in the mechanical engineering sector reported by the German Engineering Foundation (VDMA). Order intake of the two first months of the new fiscal year is slightly below the level of the order intake of the fourth quarter of 2008. GEA currently sees no recovery to this situation for 2009 and has therefore launched the measures described above. This will not enable us to fully compensate for the pressure on earnings, however. Our current order backlog nevertheless provides support in this respect through the favorable margin levels of its orders. Our short-term expectations are as follows, based on our order intake between October 2008 and February 2009: – a moderate decline in investment activity in the food manufacturing and beverages industry, which represents around one half of GEA Group revenue; – an approximately unchanged level of investment activity in energy generation as a result of more favorable infrastructure and energy costs; as well as – a marked downturn in the oil and gas business. Over the longer term, we expect these markets to grow in real terms at between plus 3 and plus 6 percent on average, significantly above the real rate of growth of global GDP.

Yours,

Jürg Oleas Chairman of the Executive Board

GEA Group Annual Report 2008

5

Engineering Excellence.

GEA Group headquarters in Bochum.

Driven by expertise and considered growth, today’s GEA Group Aktien-

Qualified employees – the Group’s most important asset.

companies. The core business spans a wide spectrum of specialty mechanical

gesellschaft ranks as one of Germany’s largest pure mechanical engineering engineering and focuses on process technology and components, including

GEA, a powerful brand with high appeal. Progress in focus: Constant innovation as the foundation for sustained success.

related design and consulting services. According to its guiding theme, “Engineering Excellence.”, GEA Group’s entire business revolves around the two basic process technologies of heat and mass exchange. GEA Group equipment, machinery and processes

Always tailored to individual needs, always innovative: the production of sealed plate heat exchangers for the dairy industry. Background: The result of perfect teamwork: Valve batteries in foodstuffs production.

provide heat, chill and freeze, separate, dry, dispense in required doses and agglomerate the most varied types of materials and material combinations. With almost 50 percent share of total Group revenue, the stable-growth foodstuffs and beverages industries are the main application areas of GEA products. Further application areas include the chemicals and petrochemicals industries, the energy sector, building technology, shipbuilding and the pharmaceuticals and cosmetics industries. We are at the leading edge, both in Germany and around the world: GEA Group is positioned as one of the market and technology leaders in 90 percent of its business areas.

At GEA “Engineering Excellence.” means: – Concentration on core competencies and core technologies – Stability through diversification across regions and across a broad portfolio of products and sales areas – Technology leadership through constant innovation – Cost leadership through high productivity and global production locations – Decentralized organization ensuring superior flexibility in responding to customers’ requirements.

GEA Group Annual Report 2008

7

GEA Group‘s Shares

GEA Group‘s Shares The fi nancial crisis played a dominant role in stock markets in 2008. Following a weak start to the year, leading international stock markets proved unable to recover given numerous crises during the later course of the year and were at times subject to dramatic falls, which accelerated from September. The DAX index relinquished over 40 percent of its value in 2008. This marks 2008 as its second worst year in its 20-year history. Only in 2002 did the DAX report an even more severe decline with a fall of 44 percent. The DAX appreciated by over 100 percent between these two disastrous years. For German second-line stocks, 2008 was the worst year in their history. All three indices lost almost half their value. The index for medium-sized German joint-stock corporations, the MDAX, lost over 43 percent of its value over the course of 2008 and closed the year at the level of 5,600 points. In 2002, the worst year for the DAX, the MDAX fell by 30 percent and the SDAX declined by 28 percent. Given this backdrop, GEA Group Aktiengesellschaft’s share fell briefly to a low of EUR 18.25 on January 11, 2008, from which it rapidly recovered, however, and then outperformed its comparable index. It reached its high of EUR 26.90 on May 19, 2008 and then initially performed well in a highly volatile equity market. The global markets crisis resulted in a collapse of equity markets starting in September. Related concerns about future economic growth intensified this trend. Mechanical engineering was perceived as a particularly cyclical sector, whose shares were impacted to a disproportionate extent by price falls. GEA Group Aktiengesellschaft’s share proved unable to dissociate itself from this trend despite the considerably below-average cyclicality of its business. A key factor in this respect is the particularly Anglo-Saxon make-up of the GEA Group shareholder structure, which meant that greater selling pressure was felt from this side. The GEA Group Aktiengesellschaft’s share fell to its low for the year of EUR 9.48 on October 27, 2008. It recovered somewhat by the year end, closing on December 30 at EUR 12.15, representing a 49 percent loss compared with the 2007 year closing price.

8

GEA Group Annual Report 2008

GEA Group‘s Shares

120 % MDAX

GEA Group

110 % 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

The weak trend of equity markets has also continued in the first two months of the current year. This in turn has persisted in having a hard effect on mid and small-cap mechanical engineering stocks in particular. In this environment, the GEA Group Aktiengesellschaft share developed worse than its comparable index and fell to 8.07 EUR on February 25, 2009 – a new three year low. At the end of the year 2008, GEA Group Aktiengesellschaft’s market capitalization occupied position number 32 in Deutsche Börse AG’s index ranking list, which only takes a share’s free float into account (previous year: position number 38). In terms of trading volume, by contrast, GEA Group Aktiengesellschaft’s share fell to position 41 (previous year: position 38). GEA Group Aktiengesellschaft repurchased 175,000 shares and subsequently obtained them as part of the share repurchase program executed between October 6, 2008 and November 28, 2008. As a consequence, there were 183,807,845 shares in circulation as of December 31, 2008. GEA Group Aktiengesellschaft held no treasury shares as of December 31, 2008. According to their most recent announcements as per the German Securities Trading Act (WpHG), Allianz SE and the Kuwait Investment Office hold shares of 10.6 percent and 8.2 percent respectively, as of December 31, 2008, and are consequently the largest single shareholders. As a result of the sale of Dresdner Bank AG to Commerzbank AG on January 12, 2009, a stake transferred from Allianz SE to Commerzbank AG. Commerzbank AG has been the second largest individual shareholder since that time with a stake of 7.8 percent. This has raised the free float according to Deutsche Börse’s calculation from 81.2 to 84.0 percent.

GEA Group Annual Report 2008

9

GEA Group‘s Shares

Q4

Q4

Q1 - Q4

Q1 - Q4

2008

2007

2008

2007

Shares in issue on December 31 (million)

183.8

184.0

183.8

184.0

Number of shares in circulation on December 31 (million)

183.8

184.0

183.8

184.0

Average number of shares in circulation (million)

183.9

185.8

183.9

187.3

Share price on December 31 (EUR)

12.15

23.80

12.15

23.80

Share price high (EUR)

13.96

28.10

26.90

28.10

Share price low (EUR)

9.48

20.29

9.48

16.23

Market capitalization on December 31 (EUR billion) 1

2.23

4.38

2.23

4.38

-

-

1.4

1.7

Average daily turnover (millions of shares) Earnings per share (EUR)

0.12

0.20

0.54

1.51

of which on continuing operations (EUR)

0.73

0.83

1.89

1.26

-0.61

-0.62

-1.35

0.25

-

-

0.40

0.20

of which on discontinued operations (EUR) Dividend (EUR) 2 1) on the basis of shares in issue 2) Dividend proposal Prices: XETRA closing prices

Participation in 36 roadshows and conferences, as well as 391 one-on-one meetings, since the start of the year continues to reflect the intensive investor relations work the GEA Group is conducting and the capital market’s high degree of interest in the company even during the global financial markets crisis.

GEA Performance Share Plan The long-term remuneration program, which the company set up very successfully in 2006 for the first and second levels of management, was extended to the third management level with the implementation of the third tranche in July 2008. The rate of participation was even raised once again and now amounts to 81 percent for the third tranche.

10

GEA Group Annual Report 2008

GEA Group Annual Report 2008

11

Good taste – brought to you by GEA Good morning at GEA: no breakfast table without the technology leader’s products. Ensuring shelf-life and ease-of-use for instant products such as milk and coffee powder: GEA spray dryers From just a few cows through to customers with over 60,000 livestock: milk is produced daily around the world using GEA milking stands. GEA valve technology: Reliability and security – combined in a high-tech product. Whether yoghurt or beer: valve batteries assume complex process management in the demanding manufacturing of high quality foodstuffs. Background: Surface of a plate heat exchanger – at work in the most varied types of foodstuff production applications.

Food manufacturing is one of the most stable growth markets in the world. This is due to the rising standard of living in developing and emerging economies, as well as continued demand for new and innovative products in Western markets. GEA is a significant beneficiary of these trends. As a technology leader, GEA supplies machinery and components that guarantee secure process management, a high degree of hygiene and efficiency and embody decades of experience in the food sector. Whether it’s instant coffee, wine or beer, fruit juice, chocolate, olive oil or whiskey, but most particularly milk and dairy products such as ice cream, curd cheese, yoghurt, butter and cheese: GEA facilities and systems are at work wherever these items are produced or processed. For example, every fourth liter of milk produced around the world today is milked or processed by GEA equipment. High-technology has arrived in the cowshed: milking robots allow milk to be produced in a manner that is comfortable for livestock, while saving on time and labor resources. Spray dryers lie at the heart of milk powder manufacturing. Without separators and decanters, evaporators and filling plants there would be no convenience drinks. Juices, both with and without fruit pulp, fruit juice concentrates and soft drinks are made conservable for extended periods using GEA plate heat exchangers or filled aseptically in PET bottles using the Group’s filling machines. And around the world, GEA decanters are also at the center of process technology for the smoothies that are in such demand today.

GEA Group Annual Report 2008

13

Boards of GEA Group Aktiengesellschaft Supervisory Board

Supervisory Board of GEA Group Aktiengesellschaft

Dr. Jürgen Heraeus Chairman of the Supervisory Board

Supervisory Board committees of GEA Group Aktiengesellschaft

Chairman of the Supervisory Board of Heraeus Holding GmbH

Reinhold Siegers Deputy Chairman of the Supervisory Board

Mediation Committee pursuant to § 27 Paragraph 3 of the German Codetermination Act (MitbestG)

Chairman of the Management Board of Conergy AG

Dr. Jürgen Heraeus, Chairman Dr. Helmut Perlet Reinhold Siegers Klaus Hunger

Ahmad M.A. Bastaki

Presiding Committee

Executive Director, Office of the Managing Director, Kuwait Investment Authority

Dr. Jürgen Heraeus, Chairman Dr. Helmut Perlet Reinhold Siegers Rainer Gröbel

Chairman of the Works Council of GEA Group Aktiengesellschaft

Dieter Ammer

Rainer Gröbel Departmental Head, IG Metall, Management Board

Audit Committee Klaus Hunger Works Council Chairman of GEA Maschinenkühltechnik GmbH

Michael Kämpfert Head of Human Resourses at GEA Group Aktiengesellschaft

Dr. Dietmar Kuhnt Former Chairman of the Executive Board of RWE AG

Kurt-Jürgen Löw Works Council Chairman of GEA WestfaliaSeparator Production GmbH

Dr. Helmut Perlet Member of the Executive Board of Allianz SE

Joachim Stöber Executive Secretary to the Executive Board of IG Metall

Louis Graf von Zech Member of the Supervisory Board of BHF-Bank Aktiengesellschaft

14

GEA Group Annual Report 2008

Dr. Dietmar Kuhnt, Chairman Dr. Jürgen Heraeus Kurt-Jürgen Löw Joachim Stöber

Nomination Committee Dr. Jürgen Heraeus, Chairman Dr. Dietmar Kuhnt Dr. Helmut Perlet

Boards of GEA Group Aktiengesellschaft Executive Board

Hartmut Eberlein

Jürg Oleas

Niels Graugaard

Executive Board of GEA Group Aktiengesellschaft Jürg Oleas, Chairman of the Executive Board Jürg Oleas, a Swiss-national born on December 8, 1957 in Quito/Ecuador, was appointed Chairman of the Executive Board of GEA Group Aktiengesellschaft with effect as of November 1, 2004. His period of office runs until December 31, 2010. Jürg Oleas has been a member of the company’s Executive Board since May 1, 2001. He is responsible for the Energy and Farm Technology Segment, as well as being active as Industrial Relations Director.

Hartmut Eberlein, Chief Financial Officer Hartmut Eberlein, born on August 14, 1952 in Wesel/Germany, has been a member of the Executive Board of GEA Group Aktiengesellschaft since December 1, 2005. He was appointed CFO as of January 1, 2006, and his period of office extends up to April 22, 2009. Besides his role as a CFO, he is also responsible for the “Other” Segment.

Niels Graugaard, Executive Board member Niels Graugaard, born on February 4, 1947 in Copenhagen/Denmark, has been a member of the Executive Board of GEA Group Aktiengesellschaft since August 1, 2007. His period of office runs until July 31, 2010. He is responsible for the Process Technology Segment.

GEA Group Annual Report 2008

15

Management Report Key trends in 2008 / Aggregation of Group and parent company in the Management Report

Management Report Key trends in 2008 GEA Group’s mechanical engineering business achieved revenue of over EUR 5 billion for the first time in 2008. The fall in order intake reflects a sharp downturn in the volume of major orders in the bioethanol/biodiesel and brewery markets. In addition, the previous year, 2007, was characterized by two major orders in the powerplant area with a combined volume of EUR 340 million. Operating earnings (EBIT) from the core segments of EUR 535.2 million represented a record level. At 10.4 percent, the EBIT margin of the core business significantly exceeds our 10 percent target margin. In overall terms, the Group generated an operating profit of EUR 504.2 million with an EBIT margin of 9.7 percent. In operating terms, the separation from the heavily loss-making businesses of the predecessor companies Metallgesellschaft AG and mg technologies ag has largely been concluded. According to today’s status of knowledge, GEA Group has made appropriate provisions both for order-related risks and for matters that have yet to be clarified through legal and arbitration proceedings. Cash flow from operating activities reached EUR 388.9 million in 2008. The Group’s net debt amounts to minus EUR 60.2 million, which corresponds to a gearing of 4,1 percent. As of the year-end, the Group has at its disposal free cash and overnight deposits of EUR 431.7 million. Cash credit lines of EUR 1,160.4 million are only 43 percent utilized. As a result of the outstanding growth in fiscal 2008, the Executive and Supervisory Board proposes a doubling of the dividend to EUR 0.40 per ordinary share.

Aggregation of Group and Parent Company in the Management Report As a strategic management holding company, GEA Group Aktiengesellschaft performs a management function within the GEA Group. It maintains profit and loss transfer agreements with key subsidiaries in Germany. GEA Group Aktiengesellschaft also provides centralized financial and liquidity management. Besides this, it provides its subsidiaries with services within the framework of service agreements. The business performance, economic position and the opportunities and risks of future development of GEA Group Aktiengesellschaft cannot be separated from the business performance, economic position and the opportunities and risks of future development

16

GEA Group Annual Report 2008

Management Report Organization and structure

of the GEA Group, we have aggregated the management report of GEA Group Aktiengesellschaft with that of the GEA Group pursuant to § 315 Paragraph 3 of the German Commercial Code (HGB). Unlike the consolidated fi nancial statements based on IFRS, the single-entity fi nancial statements of GEA Group Aktiengesellschaft are based on the German Commercial Code, supplemented by the German Stock Corporation Act (AktG).

Organization and structure Strategic guiding principles and segmentation of the Group The GEA Group is run according to four strategic guiding principles: – Market leadership: GEA Group’s units concentrate on their relevant core technologies and occupy first or second position in their global sales markets. – Technological leadership: GEA Group promotes a distinctive innovation culture, which allows it to constantly renew its technological leadership. – Profit-orientation: GEA Group prioritizes profitability before volumes and stands for consistent portfolio management as well as strict cost management. – Calculated risks: Active risk management, stability through diversification and concentration on stable markets for the future are binding requirements for all GEA business units. GEA Group has segmented its activities in a new management and reporting structure since 2008. The Group is now split into two core segments, as well as into the “Other” segment. The “Energy and Farm Technology” core segment comprises mainly companies that offer technologies and products concerned with energy generation, air treatment and farm technologies. Companies that provide components, machinery and plant units, particularly for foodstuffs production and processing, form the “Process Technology” core segment. The segmentation is also arranged according to areas of responsibility at the Executive Board level, and consequently according to the sub-areas whose results are regularly analyzed by the executive and supervisory boards, and which form the basis for decisions. Previous years’ figures have been adjusted to the new segment structure for better comparability.

GEA Group Annual Report 2008

17

Management Report Organization and structure

Energy and Farm Technology Segment The first segment comprises the Air Treatment, Farm Technologies, Thermal Engineering and Emission Control divisions. These divisions specifically deal with air treatment in industrial and commercial buildings, as well as infrastructure facilities. It also comprises milk production systems including cowshed and animal hygiene, power plant cooling, industrial process cooling, as well as the cleaning of process emissions from basic materials industries. Jürg Oleas, Chairman of the Executive Board, manages this segment.

Process Technology Segment The second segment includes all GEA Group activities in the process technology area and comprises the Refrigeration, Process Equipment, Mechanical Separation, Process Engineering and Pharma Systems divisions. A typical process line, for example in a dairy or other type of foodstuffs operation, is always constructed drawing on the Process Technology Division’s know-how and process-technology machinery and systems. Consequently, this segment serves GEA Group’s most important sales markets – the food manufacturing and beverages industry. Board member Niels Graugaard is responsible for the management of the Process Technology Segment.

“Other” Segment The third reporting segment, which is referred to as “Other”, includes all the remaining companies engaged in non-core activities. Besides the holding company, the “Other” segment still contains pension obligations, residual mining obligations, and companies that act as vehicles for land no longer required for operations, and held for sale, and which belonged historically to mg technologies ag. CFO Hartmut Eberlein manages this reporting segment.

Holding company GEA Group is organized as a group of divisions under a strategic management holding company, the stockmarket-listed GEA Group Aktiengesellschaft. The holding company performs important general functions for the whole Group. These are the centralized management of strategic, personnel, legal and tax matters, mergers & acquisitions, supply management, centralized financial management, group controlling, group accounting, as well as group communications, investor relations and internal audit.

18

GEA Group Annual Report 2008

Management Report Operating activities

Operating activities Description of operating activities and competitive position GEA Group is a globally successful technology group whose engineering companies operate in over 50 countries. The Group concentrates on specialty mechanical engineering, particularly process technology, components and plant engineering. The focus is on the two basic process technology areas of heat and mass exchange. There are no directly comparable competitors at the segmental level. The technology and market-oriented divisions of both core segments are presented in greater detail below:

Energy and Farm Technology Segment The Air Treatment Division is the European market leader for both centralized and decentralized solutions for heating, air conditioning, ventilation and control engineering. This equipment is used, for example, in hotels, public buildings, museums, public swimming baths, leisure facilities, cruise ships, retail and commercial real estate, and production workshops. Complete air-conditioning and clean-room systems are offered for highly sensitive areas of the pharmaceutical, computer and electrical-engineering industries, and for hospitals. The division’s tailored solutions aim at the greatest possible reduction of energy consumption over the entire lifespan of the plants, accompanied by the best possible results in terms of comfort, reliability and working productivity. One specialist field is air filtering technology (separators, filters, all the way through to complete filtering plants), which, among other areas, is used in construction engineering, and in various aspects of process engineering. In the global milk production market, the Farm Technologies Division is one of the two largest manufacturers of milking, cooling, feeding and herd management technology and of products concerned with milk production. The division’s companies are also an expert partner for innovative services relating to milking and animal hygiene. Its wide-ranging product program offers system solutions for dairy herd owners to produce milk on a professional basis in combination with the greatest degree of efficiency. The product range can be customized for all herd sizes and customer requirements and includes, for example, milking carousels and stands, independently operating milking robots, cooling tanks, various cowshed fixtures and cleaning and slurry disposal systems. As a full range product provider, the division also supplies consumables such as disinfectants and teat rubbers to end-customers through dealers. Practical and reliable process management systems combined with high-performance electronics underpin the products. The successful sales strategy is based on a dense network of specialist centers and dealers functioning as sales and service partners in all markets.

GEA Group Annual Report 2008

19

Management Report Operating activities

The Thermal Engineering Division is one of the world’s two market leaders in the area of industrial thermal engineering using air. The division’s customers come from the power plant area, general industry, as well as all process industry areas such as chemicals, petrochemicals and natural gas processing, such as in liquefied natural gas (LNG) plants. The principal product groups are direct and indirect dry cooling systems, as well as wet cooling systems. A particularity of the division is that it is also the only division characterized by major orders, mainly in the power plant cooling area. Since these orders are mostly received at very irregular intervals, comparisons for the division or segment may be sharply distorted. The Emission Control Division operates successfully around the world in the industrial environmental protection area. The division designs and builds gas cleaning plants on the basis of a broad technology range. It offers tailored system solutions for producers or constructors of entire plants from the nonferrous metals, chemicals, iron and steel, cement, and glass industries. The extensive technology range includes dust extraction, the dry and wet removal of gaseous pollutants from process gases, heavy metal separation, the reduction of acidic gas particles, dioxins and furans, and other components of discharge and exhaust gas.

Energy and Farm Technology

Process Technology

Air Treatment

Refrigeration

Farm Technologies

Process Equipment

Thermal Engineering

Mechanical Separation

Emission Control

Process Engineering

Pharma Systems

20

GEA Group Annual Report 2008

Management Report Operating activities

Process Technology Segment The Refrigeration Division is one of the world’s market leaders in the area of the industrial cooling of processes and products. The product range is based on the core components of reciprocating compressors and screw compressors, condensers, coolers, freezers and valves. The division’s cooling equipment and complete refrigeration systems are required mainly for processing and warehousing according to quality assurance standards, as well as for the transportation of foodstuffs and beverages. There are also numerous marine applications, as well as in the chemical and pharmaceutical industries. Further areas of application include ice cream factories and demanding areas such as indoor skiing facilities and ice sports halls. The Process Equipment Division is one of the world’s leading providers of equipment to process technology industries. The areas of expertise of this division’s companies comprises machinery and equipment for the optimal use of heat, for machine cooling and for various specialist technology areas. Compact heat exchangers (e.g. welded, bolted and soldered intercoolers for diesel engines and generator coolers) and tube bundle heat exchangers (e.g. transformer oil coolers for energy technology and heat exchangers for petrochemical applications) are the traditional products. Besides heat-exchangers, valves and pumps are used as liquid-processing components by dairies, breweries and the pharmaceutical industry. Dairies are the principal customers for homogenizers. This division ranks either fi rst or second worldwide in the vast majority of its markets.

Process

Heat exchange

Mass exchange

Beer Juices / wines / spirits

Pharma / cosmetics Chemicals / oil / gas Separate

Freeze

Other

Cool

HVAC*

Heat

Power generation

Dry / dewater / distill

Starch

Pump / dose

Fats / sugar / coffee / cocoa

Agglomerate / package

Milk

* HVAC: Heating, Ventilation and Air Conditioning

GEA Group Annual Report 2008

21

Management Report Operating activities

The Mechanical Separation Division is the global market leader in the area of centrifugal separation technology. Separators and decanters are centrifuges used to separate solids from liquids, or to separate liquid mixtures while simultaneously throwing off solids, also under extreme application conditions. In many sectors, mechanical separation features as a key technology today for the clarification of liquids, the separation of liquid mixtures, the concentration and dehydration of solids and the wet classification and extraction of materials. It offers significant potential for the improvement and innovative development of products and processes. For example, this applies to the production of beer, wine, or juices, cooking oils and fats, the manufacturing and processing of dairy products, numerous chemical and pharmaceutical processes, as well as the centrifugal preparation of mineral oils and their derivatives. The broad application range includes the foodstuffs industry, industrial and environmental technology, and the mineral oil and shipbuilding industries. The Process Engineering Division plans and creates individual plants and complete systems for liquid processing, drying technology and powder processing. Customers are from the demanding dairy, foodstuffs, brewery and beverages industries, and from the chemical and biotechnology industries. The division consists of a broad range of companies, which are all global leaders in their specialty areas. As far as liquid processing is concerned, the division supplies, among other things, pasteurization plants, membrane filtration systems, complete process lines for milk processing and breweries, as well as process integration and automation systems. The division’s companies offer technologies for the crystallization, vaporization, freeze-concentration and extraction of solid and liquid materials for the concentration and pretreatment of the most varied substances. The division is also a leader for contact and convection drying, including spray dryers, steam fluid bed dryers, freeze dryers, flash dryers, ring and rotation dryers and vortex disintegrator dryers. In the powder processing area, the most up-to-date solutions are offered for manufacturing granulates and agglomerates, including agglomerators, coaters, containment handling and dispensing machines, granulators, pelletizers, and powder handling and packing systems. The Pharma Systems Division concentrates on the requirements of the pharmaceuticals and cosmetics industries. The division ranks among the international market leaders thanks to its combination of strong brands and a pronounced commitment to research and development. The division supplies pharmaceutical manufacturers around the world with the most up-to-date solutions for the processing of pharmacologically active substances, ranging from substance processing all the way through to the production of secure delivery forms and liquid-sterile medicines. The product portfolio also includes granulation and drying systems, closed and integrated system solutions for materials handling, innovative tablet presses, spray drying technology, and freeze drying systems with automatic processing and discharging.

22

GEA Group Annual Report 2008

Management Report Operating activities

Internal control system Internal controlling is performed on the basis of key performance indicators identified as value-drivers. As in previous years, the focus is on increasing EBIT and EBIT margin. The EBIT margin is a key indicator in this system for measuring improved profitability at the operating unit level. The working capital to sales ratio is regarded as a further key value-driver. These key indicators represent the main factors influencing return on invested capital. Return on capital employed (ROCE) is also frequently used to assess the effectiveness of capital invested in the operating business. Return on capital employed is calculated by comparing EBIT to capital employed. Besides working capital, the definition used for capital employed includes operationally-employed fixed assets. Given the changes in the economic environment and compared to the previous years that were characterized by high growth, the management of capital employed, particularly working capital, is of increasing importance. In addition to the above-mentioned key performance indicators,the individual assessment and approval of customer and investment projects applying specific thresholds for the different management levels has been formally instituted as a controlling instrument. The evaluation of customer projects is performed on the basis of expected margins (gross margin and on a full-cost basis), the commercial and contractual risk profile of projects, and particularly considering cash flows and prospective paymentterms. The key assessment criterion when evaluating expansion investment projects is their importance for achieving strategic objectives approved as part of the medium-term planning. Commercial decision criteria for rationalization and replacement investments include, among other things, the expected return on the project relative to theweighted average costs of capital, the payback period as a benchmark for the risks entailed in changes to economic circumstances, as well as operating requirements. So-called “Jours Fixes” are held at least once per quarter at which the board member responsible for the relevant segment jointly analyzes trends with the divisions. “Extended Management Board Meetings” are also convened regularly, which are attended by both the Executive Board and Division Presidents. These meetings provide an opportunity to systematically examine trends in the business environment in order to identify potentially negative effects on the relevant value-drivers, so that countermeasures can be initiated at an early stage.

GEA Group Annual Report 2008

23

Management Report Operating activities

The key value-drivers are also reflected in the management remuneration system, which rounds out the Group’s internal control system. The EBIT, EBIT margin, and working capital to sales ratio form the basis for variable remuneration components. The remuneration system is consequently optimally oriented to enhancing the value of the company.

Production and investment The predominantly medium-sized companies of the GEA Group produce components, machinery, systems and plant mainly on an order basis for the foodstuffs and beverages industries, the energy sector, and the chemical and pharmaceutical industries. Flexible production design ensures short throughput times, low cost structures and low capital tie-up. GEA Group is expanding its production capacities in Europe, the USA and in the world’s growth regions through targeted investments and acquisitions that form meaningful additions to the product portfolio or strengthen regional market coverage. This allows it to hedge itself to a greater extent against global currency fluctuations, and to exploit more favorable cost structures in terms of production, purchasing and logistics. Its growing regional presence through local companies secures GEA Group’s market position in promising markets. GEA Group’s most important project in the production area is its investment program for the Mechanical Separation Division entailing a total volume of around EUR 160 million and spanning several years. The Mechanical Separation Division is one of the divisions least exposed to economic fluctuations. The division enjoys a very high degree of development potential as a result of new applications, for example in the areas of the foodstuff and beverages industries, the environment, wastewater, and in oil production and processing applications. The program mainly concentrates on raising efficiency of the German locations at Oelde and Niederahr through the modernization and focusing of production. The French facility at Château-Thierry is also being restructured into a global service and maintenance center including replacement part production. In China, GEA Group will create a new production facility for complete separators and decanters, and expand the previous assembly plant in India to become a complete manufacturing plant for decanters and basic separators. The entire project will be completed during the course of 2011. The ground was broken for the construction measures in Oelde in December 2008.

24

GEA Group Annual Report 2008

Management Report Operating activities

A new plant for the Thermal Engineering Division will be opened in Wuqing in China in spring 2009. This plant, which belongs to the Hungarian GEA subsidiary EGI, will directly supply the Chinese power plant market with components for indirect dry cooling systems. Indirect dry cooling systems combine the sparing use of resources with power plant efficiency gains. The division will commission a further plant in spring 2009 in Celaya in Mexico. In future, this plant will produce components for air-cooled condensers for the American market. GEA Group further expanded its portfolio of manufacturing technologies and locations through acquisitions made in 2008. One example to mention at this juncture is the International Cooling Group (ICG), which is based at Fareham near Southampton, United Kingdom. This was GEA’s largest acquisition in 2008. ICG successfully manufactures vaporizers and condenser units for the industrial refrigeration technology market under the Searle and Raffel brand names in the United Kingdom, France and Germany. GEA Group has not offered this type of technology to date. The company generated revenue of almost EUR 70 million in 2007 with a workforce of around 500 employees. ICG represents an outstanding bolt-on business for the GEA Group, since the acquisition has extended both the technology portfolio and its geographic market presence. It further strengthens the Refrigeration Division’s competitiveness and market position in Europe, and achieves further significant synergy effects for the GEA Group.

GEA Group Annual Report 2008

25

Management Report Operating activities

Research and development GEA Group’s successful innovation culture forms the decisive basis for the future success of our business. The systematic research and development of the GEA Group is located on a decentralized basis within the individual divisions. It is further supported by various Group-internal competitions, a uniform ideas and improvement management system that has now been rolled out across the world and a targeted acquisition strategy. The aim of this culture within the GEA Group is to turn innovations into marketable products as rapidly as possible. The decisive factor in this respect is the efficiency of products and systems that offer optimum value for money and, in conjunction with a complementary range of services, deliver critical value-added for the customer. This is the only way to continue to secure our technological edge compared with global competitors. GEA Group also expands its development potential through targeted acquisitions that further round out the company’s portfolio. For many years all GEA Group divisions have held innovation competitions that allow product ideas or ongoing development projects to be presented. Relevant divisional level winners subsequently compete against each other in a final competition. The three divisions that present the most promising innovations in terms of market opportunities, earnings potential, prospects for realization and level of innovation, together receive total prize money of EUR 1.5 million. This prize money is invested in their development budgets with the aim of giving the innovative solutions a boost that will ready them for their market launch. In 2008, the winner was a new continuous granulation technical process from the Pharma Systems Division that cuts maintenance-related plant downtime. This generates not only higher productivity for customers, but also a significant reduction in the volume of waste generated during production. GEA Group promotes and harnesses the individual innovative ability of all employees through its Group-wide “i²m” Ideas & Improvement Management scheme. i²m was initially launched in Germany in 2007 and melds various operating suggestion scheme tools into a single improvement system. The system was launched globally in September 2008 and has proved its worth across different cultures. Its clear and comprehensible structures, accompanied by a variable incentive scheme, contribute to the achievement of sustainable improvements in the Group’s operational efficiency, product and work quality and customer satisfaction. Employees from across the Group submitted a total of 12,747 ideas in 2008 using the i²m scheme. Of these employee ideas, 3,912 were implemented successfully in 2008. They yielded a calculated net benefit of over EUR 7.4 million for the Group within the first year (further information on this topic can be found in the Employees chapter on page 47).

26

GEA Group Annual Report 2008

Management Report Operating activities

GEA Group companies filed 75 new patents in 2008 (2007: 87) GEA Group employed a total of 442 research and development (R&D) staff members across the Group in 2008, compared with 418 in 2007. Group R&D expenditure amounted to EUR 76.3 million, compared with EUR 72.4 million in the previous year. This equates to an R&D investment by the GEA Group equivalent to 1.5 percent of revenue in 2008 (previous year: 1.5 percent).

Procurement GEA Group’s procurement operations are generally successfully coordinated across companies and divisions. Targeted procurement coordination allows further savings potentials to be realized. This coordination is structured according to regions and strategic product groups. Besides the procurement of components and semifi nished products, strategic projects in the logistics and travel management area have also made a very important contribution to the reduction of purchasing and process costs. We are also working intensively on perfecting both existing and new purchasing processes in order to ensure constant improvement in data quality, and to extract purchasing potentials that have not yet been identified. This also includes the consistent monitoring of suppliers with respect to creditworthiness and the hedging of risks. The qualification and further training of all purchasers, including within divisions and operating units, has been a fi xed component of the GEA Group’s purchasing strategy for many years. Purchasing volumes have risen to around EUR 2.9 billion as a result of the continued growth of the GEA Group. Until the very end of year, 2008 was characterized by high capacity utilization at our suppliers accompanied by correspondingly long delivery times. Consequently, cost pressure for most technical goods remained extremely high. Price increases for key groups of technical materials were avoided in many cases, however. Following a brief easing in the steel products area in the fi rst quarter, the company was confronted by some drastic price increases from the middle of the year. Early price-fi xing for copper and aluminum products allowed prices to remain at a calculable level, thereby avoiding the effects of major price fluctuations. Raw materials price trends remain a particular focus of strategic procurement, and are constantly analyzed by a team of experts to allow global trends to be identified at an early juncture and optimal action to be taken.

GEA Group Annual Report 2008

27

Management Report Operating activities

Environment GEA Group takes its environmental and climate policy responsibilities seriously. The technologies which GEA Group customers use are energy-intensive. With its solutions, the Group has nevertheless long set benchmarks for a successful symbiosis between economic and technological efficiency and consequently ranks as product global leader, including the energy efficiency and environmental areas. Emission volumes and energy consumption are relatively low in the machine building area. The environmental protection measures within GEA Group’s production areas always fulfill statutory requirements and frequently exceed them. This is evidenced by the DIN EN ISO 14001 environmental certificates that have been awarded to GEA Group’s own production facilities following the implementation of various measures. Cutting-edge, production-integrated environmental protection, conservation of resources, integrated materials management and comprehensive health and safety regulations are a matter of course at all companies in the GEA Group engaged in manufacturing activities. Production waste is sorted and recycled wherever possible. Additional environmental burdens are avoided as far as possible by the use of exhaust air fi lters, collecting containers, or the treatment and recycling of process fluids. GEA Group believes the current climate debate gives rise to significant potential for innovative technologies that contribute to solving many future challenges. Energy efficiency is a major factor determining total lifespan costs of a machine. It is consequently a central design criterion in much Group plant and equipment. Besides operating performance, reducing energy consumption is one of the most important development objectives for all new GEA Group projects. GEA Group continued to participate in the Carbon Disclosure Project (CDP) survey in 2008, and provided information on risks and opportunities for the company arising from climate change, as well as about clean air schemes. From the GEA Group’s perspective, risks arising from potential demand shifts are at least offset by equally promising opportunities resulting from its innovative product range of energy-efficient solutions for customers’ production processes. As far as the GEA Group is concerned, the days when ecology and business were contradictory objectives in the process technology sector have long since passed. CDP is an independent non-profit organization, which currently comprises around 400 institutional investors. The survey included questions about companies’ strategies to tackle climate change and company-specific greenhouse gas emissions. It was subsequently made available to current and potential investors.

28

GEA Group Annual Report 2008

Management Report Operating activities

GEA Group regards itself, in cooperation with customers, as responsible for ensuring that both aspects receive balanced treatment where any order is concerned. Using GEA Group machinery, components, systems and process plants, customers thus make an important contribution to climate protection, for example through deciding to use GEA Group dry cooling systems. The idea of employing air as a coolant, instead of water, conserves groundwater resources and avoids the warming of natural watercourses. This results in a particular demand potential from regions of the world that have poor water resources, such as the Middle East, China or South Africa, where power plant construction is often only made possible by the use of this cooling method. In Europe and North America too, however, interest is growing in this environmentally conservative technology. It allows, for example, power plants to continue to be operated during hot summer months without the reflow temperature of the cooling water exceeding critical limits. GEA Group is also one of the leading providers of gas cleaning. GEA Bischoff equipment allows our customers to significantly reduce their emissions. GEA Westfalia Separator’s clarifying decanters are employed very successfully to dehydrate sludge in drinking water purification plants. GEA Group companies are also important partners to the polymer chemicals, pharmaceuticals, raw materials and foodstuffs industries. GEA Group is broadly positioned and a global leader with respect to energy efficiency and sustainability in central technologies such as evaporation, crystallization, drying and distillation, as well as mechanical separation technology. GEA Group regularly participates in the climate change debate in its ‘GENERATE’ company magazine. The company shows how its entire product portfolio comprises innovative products and processes that can be used around the world to combine operating efficiency with the highest level of environmental tolerance.

GEA Group Annual Report 2008

29

Management Report Discontinued operations

Discontinued operations Discontinued operations continued to burden net income with further charges in 2008. The losses from Ruhr-Zink, which closed its operations on December 31, 2008, resulted from asset write-downs and provisions for closure-related expenses. An increase in provisions was also required for construction contract-related risks that reside from the former Plant Engineering Segment. On December 5, 2008, the Executive Board of GEA Group Aktiengesellschaft passed a resolution to close Ruhr-Zink as of December 31, 2008. This decision was taken after the failure of fi nal talks with potential investors and the conclusion of negotiations with the Works Council concerning a redundancy plan and a settlement of interests. In view of the economic situation and related forecasts, particularly with regard to the prices of zinc and energy, the Executive Board saw no alternative to a closure of the company, since significant losses were expected to result over the next few years had operations been continued. A buyer is currently being sought for MG Rohstoff handel, which is operating profitably. Despite extremely high production volumes in its operating business in 2008, Ruhr-Zink reported a significantly lower order intake, and consequently also significantly lower revenue. Because of the considerably lower zinc price level, revenues of only EUR 204.4 million were generated during the 2008 fiscal year (previous year: EUR 342.6 million). Earnings after tax amounted to minus EUR 84.5 million (previous year: EUR 17.3 million) when taking closure costs into account. Operations discontinued in earlier periods contributed losses of EUR 163.5 in the 2008 fiscal year. These are predominantly attributable to the former Lentjes Division. They result from further delays incompletion of long-term construction contracts, which have resulted in costs from acceleration measures, additional costs relating to the extended use of construction sites and contractual liquidated damages for delay. The share in construction contract -related losses the former Lurgi Division incurred only had a minimal impact on the net result from discontinued operations. All orders where GEA Group continues to participate in risks, both at Lurgi and Lentjes, will prospectively be completed in 2009 and transfer to their warranty phases.

30

GEA Group Annual Report 2008

Management Report Group business performance

Group business performance Economic environment The German economy remained in an overall satisfactory condition over the course of the first half of 2008 despite many constrictive factors arising from the economic environment. The economy nevertheless started to cool markedly in the spring. The main contributing factors were the difficult situation in the US real estate market, turbulence in fi nancial markets, raw materials prices that saw initial rises and gloomy economic prospects for important exporting countries, particularly in Europe. The dramatic intensification of the financial crisis in the third quarter and the growing global weakness put economic growth under pressure around the world. Along with the USA, a number of other countries, including important trading partners to Germany such as the EU and Japan, moved to the brink of, and into, recession. Above and beyond this, hitherto strong growth in important emerging economies declined significantly in some areas. The weakening of macroeconomic output in Germany that started in the course of the first half of 2008 accelerated during the second half of the year. Falling commodity prices resulted in declining revenues in export countries, thereby cutting demand for German products. The weaker pace of global economic growth had a particular impact on highly export-dependent industries. The German Engineering Foundation (VDMA), for example, reported a 40 percent year-on-year collapse in orders in December 2008. While domestic business fell 39 percent, export demand was down 41 percent. There was a total decline of 29 percent year-on-year for the October to December 2008 quarter with domestic orders down 28 percent and export orders showing a decline of 30 percent.

GEA Group Annual Report 2008

31

Management Report Group business performance

Order intake The worsening global economic conditions in the fourth quarter also affected the GEA Group. While third-quarter order intake in the core segments continued to report growth in the form of a 6.9 percent year-on-year increase, the fourth quarter showed a marked weakness. A few customer orders were even cancelled. Although a decline in the growth rate had been anticipated due to the fact that large order contracts totaling approximately EUR 340 million were received from South Africa in the fourth quarter of 2007, the drop nevertheless exceeded expectations. The decline in consolidated order intake amounted to 13.7 percent, to EUR 1,113.3 million, compared with the average for the fi rst three quarters of 2008 (EUR 1,290.2 million). Order intake

Change

Change

2008

2007

(absolute)

(%)

Energy and Farm Technology

1,645.6

1,991.2

-345.6

-17.4

Process Technology

3,346.6

3,432.1

-85.5

-2.5

Total

4,992.2

5,423.4

-431.2

-8.0

-8.3

-6.4

-2.0

-30.7

4,983.9

5,417.0

-433.1

-8.0

(EUR million)

"Other" and consolidation GEA Group

As a consequence, GEA Group’s order intake fell last year by 1.1 percent year-on-year (excluding the Thermal Engineering Division, which is characterized by large orders to a greater extent than other divisions). There was a decline of 8.0 percent for both the core business and the GEA Group. Acquisitions made in the 2008 fi scal year contributed EUR 74 million to the order intake. Changes in currency exchange rates had a negative impact on order intake of EUR 112.9 million. Besides the major orders already mentioned and the almost mutually compensatory effects of acquisitions and currency shifts, this total decline of EUR 433.1 million is attributable to intentional project selection in the interests of margin targets. Above and beyond this, the biodiesel and bioethanol plant business practically came to a standstill in 2008. Significantly fewer projects than in 2007 were tendered in the brewery sector. Order volumes with major pharmaceuticals groups also suffered a marked decline due to consolidation projects and other factors impacting this sector.

32

GEA Group Annual Report 2008

Management Report Group business performance

Order intake by quarter (EUR million) 1,113.3 1,223.5 1,265.0 1,382.1 2008 1,267.9

1,196.1

1,160.5

1,792.5

Q1

Q2

Q3

Q4

2007

The greatest gains with respect to customer sectors were registered in the areas of milk production and processing, shipbuilding, and oil and gas treatment and processing. The Farm Technologies, Process Engineering and Mechanical Separation divisions benefited particularly in the milk production and processing area, which is experiencing strong growth, particularly in emerging economies, as a result of their components, systems and plants. Demand for components and equipment for new oil and gas production plants and refi neries had a positive effect on the order intake of the Mechanical Separation and Thermal Engineering divisions in the Middle East, Canada and the USA. With the Process Equipment Division’s plate heat exchangers and the Mechanical Separation Division’s separators, GEA Group participated in the disproportionately high growth in order volumes in the shipbuilding sector in the fi rst three quarters. Energy and Farm Technology (2008 vs. 2007)

Order intake

Air Treatment Farm Technologies Thermal Engineering Emission Control Within the Energy and Farm Technology Segment, the Air Treatment Division is currently operating mainly in the European market, where it has benefited particularly from the strength of the construction economy in Eastern Europe. The global rise in demand for milk, as well as the 2008 acquisition of Norbco in the USA, further boosted the Farm Technologies Division’s order intake. The division won further orders for major installations in CIS states, with promising opportunities for growth in the aftermarket business. During the whole of 2008, the Thermal Engineering Division suffered from the sharp decline in the number of major orders available for tender. While the trend in the power plant area continued almost unabated, a slowdown was detectable in the industrial process cooling area, particularly towards the end of the year. This is mainly

GEA Group Annual Report 2008

33

Management Report Group business performance

attributable to uncertainty in the chemicals/petrochemicals markets. By contrast there was strong growth in components, accompanied by smaller order volumes. The Emission Control Division intentionally withdrew from the riskier turnkey plant business, thereby significantly undershooting the previous year’s figures, while nevertheless considerably improving the margin quality of its order intake. Process Technology (2008 vs. 2007)

Order intake

Refrigeration Process Equipment Mechanical Separation Process Engineering Pharma Systems In the Process Technology Segment, the Refrigeration Division further expanded its market position in the components and service businesses. Slight rates of growth were achieved in the contracting business, although with in part significant regional differences. The Process Equipment Division again achieved a higher level of order intake from the marine industry in the heat exchanger area, particularly for shipbuilding in Asia. A pronounced weakness was nevertheless registered in this area in the fourth quarter. In the area of industrial heat exchangers, good market conditions continued in the energy sector, although the marine business is stagnating. Within the Mechanical Separation Division, it was particularly oil production and energy that reported very strong rates of growth. The beverage industry also experienced strong demand, for example in the case of fruit juice, wine and beer. The declining business with biodiesel projects was signifi cantly compensated for as a consequence. The foodstuffs and soft drinks areas in the Process Engineering Division failed to offset falls in order intake for bioethanol plants and in the brewery sector. The Pharma Systems Division operated in a difficult market environment since major pharmaceuticals manufacturers introduced various costreduction programs in early 2008. This has meant that many investment decisions relating to new plants in Europe and America continue to be delayed.

34

GEA Group Annual Report 2008

Management Report Group business performance

Revenue Group revenue for the full year rose to EUR 5,179.0 million (previous year: EUR 4,856.0 million), representing a year-on-year improvement of 6.7 percent. The growth rate contribution from the core segments amounted to 7.3 percent. Acquisitions contributed revenue of EUR 68.4 million. The effect from changes in currency exchange rates amounted to minus EUR 115.0 million. Revenue

Change

(EUR million)

Change

2008

2007

(absolute)

(%)

Energy and Farm Technology

1,818.6

1,648.3

170.3

10.3

Process Technology

3,338.1

3,159.0

179.2

5.7

Total

5,156.7

4,807.2

349.5

7.3

"Other" and consolidation GEA Group

22.3

48.8

-26.5

-54.3

5,179.0

4,856.0

323.0

6.7

Despite the current worsening of the economy, the Group benefited from its increasingly global presence in dynamic long-term growth markets such as Eastern Europe, Asia and South America. While revenue in these markets grew 9.1 percent, contributing 32.0 percent share to total revenue, business in Western Europe was up by only 5.9 percent (42.5 percent share of total revenue). Revenue in the USA fell 2.4 percent (14.4 percent share of total revenue). US revenue rose by as much as 4.4 percent when adjusted for currency effects, however.

Revenue by region (EUR million)

179.2 1,125.5 1,042.7

2,149.5 682.1 2008 643.4

2,017.3

1,000.7

1,068.1

Germany

Europe

Americas

Asia, Oceania

126.5

2007 Africa

GEA Group Annual Report 2008

35

Management Report Group business performance

Energy and Farm Technology (2008 vs. 2007)

Revenue

Air Treatment Farm Technologies Thermal Engineering Emission Control In the Energy and Farm Technology Segment, the Air Treatment Division continued to benefit into the fourth quarter from the good order book position in the construction industry, particularly in Eastern Europe. The Farm Technologies Division continued to experience rapid growth. Its market position was further strengthened by the expansion of the revenue network and extension of the product range. There is growing customer interest in high-quality milk production and processing systems, particularly in Latin America. The Thermal Engineering Division outstripped the previous year’s revenue due to its high order backlog. Major orders booked in 2007 will increasingly be realized as revenue from 2009 onwards. The decline in the Emission Control Division is due exclusively to its intentional concentration on higher-margin business. Process Technology (2008 vs. 2007)

Revenue

Refrigeration Process Equipment Mechanical Separation Process Engineering Pharma Systems The Process Technology Segment once again posted high growth rates, particularly in its high-margin components business. The Refrigeration Division reported growing revenue for refrigeration plants for the oil, gas, and chemicals industries. The marine, diesel, and oil and gas markets experienced good growth in the Process Equipment Division. The Mechanical Separation Division reported rising revenue with complete process lines. High commodity prices offered greater incentives to customers to process and recycle used materials with the help of highly efficient GEA technology. The Process Engineering Division proved unable to completely maintain its previous year’s level of revenue during the course of the year. The declining bioethanol business had a negative impact in this respect. The Pharma Systems Division failed to reach its previous year’s revenue level due to the current cutback in investment activity on the part of major pharmaceuticals manufacturers in Europe and the USA. Revenue reported in the “Other” Segment mainly results from rental income.

36

GEA Group Annual Report 2008

Management Report Group business performance

Order backlog Markedly weaker business volumes in the fourth quarter, accompanied by high fourthquarter revenue, fed through to a fall in GEA Group’s order backlog as of December 31, 2008. At EUR 2,450.7 million, it was down by EUR 248.1 million, or 9.2 percent, compared with the comparable prior-year reporting date. Order backlog (EUR million)

12/31/2008

12/31/2007

Change (absolute)

Change (%)

Energy and Farm Technology

1,025.5

1,266.6

-241.1

-19.0

Process Technology

1,431.3

1,439.3

-8.1

-0.6

Total

2,456.8

2,705.9

-249.1

-9.2

"Other" and consolidated GEA Group

-6.1

-7.2

1.1

14.9

2,450.7

2,698.7

-248.1

-9.2

Consequently, the order backlog reported a similar trend to order intake, and now represents an order intake of 5.9 months (previous year: 6.0 months). The highly profitable Farm Technologies, Process Equipment, and Mechanical Separation divisions boosted their order backlog by 23.4 percent year-on-year.

GEA Group Annual Report 2008

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Management Report Group business performance

Results of operations In overall terms, GEA Group grew earnings before interest and tax (EBIT) by 25.7 percent compared to last year EUR 504.2 million, and once again significantly improved its EBIT margin, by 148 basis points to 9.7 percent. The Group’s focus on margin quality is thus bearing fruit. Corporate acquisitions generated EBIT of EUR 4.9 million. Changes in currency exchange rates reduced EBIT by EUR 4.7 million compared with the previous year. Results of operations (EUR million)

EBIT

EBIT-Margin

EBIT

EBIT-Margin

Change in EBIT

2008

(%)

2007

(%)

(%)

Energy and Farm Technology

165.5

9.1

139.8

8.5

18.4

Process Technology

369.7

11.1

301.7

9.6

22.5

Total

535.2

10.4

441.5

9.2

21.2

0.2

1.1

-2.8

-5.6

108.6

“Other“ and consolidation Holding company

-31.2

-

-37.6

-

17.0

GEA Group EBIT

504.2

9.7

401.1

8.3

25.7

EBIT in a period of three years (EUR million) 2008

504.2

2007 2006

401.1 270.7

EBIT in the core segments rose 21.2 percent to EUR 535.2 million. Both segments contributed almost equally to this increase in percentage terms. Consequently, the EBIT margin in the core segments improved by 119 basis points, rising from 9.2 percent to 10.4 percent. This allowed the 10.0 percent target margin to be clearly exceeded.

38

GEA Group Annual Report 2008

Management Report Group business performance

Energy and Farm Technology (2008 vs. 2007)

EBIT

EBIT-Margin

Air Treatment Farm Technologies Thermal Engineering Emission Control In the Energy and Farm Technology Segment, all divisions with the exception of the Farm Technologies Division, which was obliged to absorb quality costs relating to the ongoing production of milking robots, advanced their earnings faster than revenue. Earnings in the Air Treatment Division reflected to a significantly positive extent the successful handling of start-up problems resulting from the large-scale renewal of the product range. The Thermal Engineering and Emission Control divisions also further increased their EBIT margins to a marked degree. In overall terms, the segment’s divisions improved their EBIT margin last year by 62 basis points to 9.1 percent. Process Technology (2008 vs. 2007)

EBIT

EBIT-Margin

Refrigeration Process Equipment Mechanical Separation Process Engineering Pharma Systems The Process Technology Segment also raised its earnings significantly thanks to the sustained demand for processed foodstuffs and beverages in growth regions. The Refrigeration Division improved its earnings and EBIT margin, particularly for components. The further significant earnings improvement in the Process Equipment Division reflected excellent growth in nearly all business areas, which was additionally promoted by the expansion of activities in the USA and Asia. The Mechanical Separation Division introduced its “Best-Fit” program, which entails using standardized decanters in various applications. Besides this, a high degree of capacity utilization and the strengthened service business are contributing to higher EBIT. The Process Engineering Division also improved its earnings significantly, despite a decline in revenue. This is due to a much more selective approach to projects and a concentration on higher-margin business. The Pharma Systems Division reported a loss due to a brake on investment volume, particularly in the case of major pharmaceuticals customers. This result also includes extraordinary charges of EUR 5.0 million arising from the complete restructuring of the division including the closure and relocation of entire plants. In overall terms, the segment reported an EBIT margin of 11.1 percent in 2008 (+ 152 basis points).

GEA Group Annual Report 2008

39

Management Report Group business performance

Key figures on results of operations

Change

Change

2008

2007

(absolute)

(%)

5,179.0

4,856.0

323.0

6.7

EBITDA

585.9

480.7

105.3

21.9

EBIT

504.2

401.1

103.1

25.7

(EUR million) Revenue

Earnings before tax Income taxes Net income from continued operations Net income/loss from discontinued operations Net income/loss

458.8

351.6

107.2

30.5

-109.8

-114.4

4.6

4.0

349.0

237.2

111.8

47.1

-248.0

46.3

-294.3

-

101.0

283.5

-182.5

-64.4

The EBIT for the Group includes depreciation and amortization of EUR 81.7 million (previous year: EUR 79.6 million). Consequently, EBITDA rose from EUR 480.7 million to EUR 585.9 million. Among other things, the net interest result of minus EUR 45.4 million (previous year: minus EUR 49.5 million) contains EUR 28.6 million (previous year: EUR 27.9 million) of interest cost relating to pension plans and supplementary health care benefits. The income tax expense of EUR 109.8 million (previous year: EUR 114.4 million) comprises current taxes of EUR 75.2 million (previous year: EUR 64.4 million) and deferred taxes of EUR 34.6 million (previous year: EUR 50.0 million). The previous year’s figures include valuation adjustments of EUR 69.0 million due to the reduction in the German rate of taxation. Consequently, net income on continued operations amounted to EUR 349.0 million (previous year: EUR 237.2 million). This corresponds to earnings per share of EUR 1.89, which exceeds the previous year’s figure of EUR 1.26 by 49.9 percent. Net loss on discontinued operations amounted to EUR 248.0 million. This corresponds to earnings per share of minus EUR 1.35 (previous year: EUR 0.25). This amount includes valuation adjustments and closure costs of EUR 84.5 million for Ruhr-Zink, and further provisions of EUR 187.4 million for Lentjes. The previous year’s figure of EUR 46.3 million included income from the disposal of Lurgi of EUR 207.0 million. Group net income amounted to EUR 101.0 million (previous year: EUR 283.5 million), of which EUR 99.6 million is attributable to GEA Group Aktiengesellschaft shareholders. This corresponds to earnings per share of EUR 0.54 (previous year: EUR 1.51).

40

GEA Group Annual Report 2008

Management Report Group business performance

Financial position The importance of securing liquidity and of central fi nancing has risen markedly over recent months as a result of the crisis in fi nancial markets. GEA Group has also given appropriate consideration to this point. GEA Group’s financial position remains stable. The Group has no short-term refi nancing requirements and enjoys sufficient room for maneuver in financing terms for its future corporate growth. GEA Group’s fi nancial strategy pursues the goal of not only being able to satisfy due payment obligations at any time, but also always having at its disposal, besides a strategic cash position, sufficient liquidity reserves including in the form of credit lines. In this respect, GEA Group Aktiengesellschaft as the holding company is essentially responsible for the management of the entire fi nancial position of the GEA Group. Cash inflows from the operating business represent our most important liquidity source. The Group-internal liquidity reconciliation of investments and borrowings – in particular the large-scale avoidance of external monetary investments and borrowings – serves to optimize our net position. To this end, GEA Group Aktiengesellschaft has set up national and international cash pooling circles that allow the account balances of the participating Group companies to be automatically reconciled on a daily basis to the credit or debit of a GEA Group Aktiengesellschaft target account. The holding company manages liquidity requirements above and beyond this. It is generally responsible for raising new funding and for investing excess liquidity. The financial crisis and a related potential credit crunch, prompted GEA Group Aktiengesellschaft to issue a EUR 200 million borrower’s note loan with a three-year term as early as August 2008. The borrower’s note loan was placed among over 30 investors in a challenging and volatile capital market environment. Besides securing liquidity flexibility, the issue proceeds also serve to fi nance investments and acquisitions. Summary cash flow statement (EUR million)

2008

2007

Change

Change

(absolute)

(%)

Cash flow from operating activities

388.9

181.1

207.8

114.8

Cash flow from investing activities

-427.2

-108.8

-318.3

-292.5

Free cash flow

-38.2

72.3

-110.5

-

Cash flow from financing activities

205.8

-50.0

255.8

-

Net position

-60.2

61.3

-121.5

-

4.1

-4.3

-

-

Gearing in percent

GEA Group Annual Report 2008

41

Management Report Group business performance

Cash flow from operating activities rose again in the year under review, from EUR 181.1 million in the previous year to EUR 388.9 million in 2008. This marked increase of EUR 207.8 million mainly reflects the record earnings achieved in the two core segments. Net cash flow from discontinued operations in 2008 related exclusively to Ruhr-Zink, while the previous year contains the operating cash flows from Lurgi, Lentjes and Ruhr-Zink. Contrary effects resulted from the change in working capital due to the sharp rise in business volume, as well as a EUR 36.8 million increase in taxes paid to EUR 68.3 million. The cash flow from investing activities rose by minus EUR 318.3 million in 2008 to minus EUR 427.2 million. The particular reasons for this marked increase were outgoing payments of EUR 215.0 million for guarantees and warranties arising from corporate disposals in the past and the non-repetition of the net inflow of EUR 86.6 million arising from the disposal of Lurgi in the previous year. Besides this, cash outflows for property, plant and equipment and intangible assets exceeded the previous year’s investments signifi cantly, by EUR 36.3 million. These outflows were offset by cash inflows from the disposal of non-current assets, which were up by EUR 19.6 million to EUR 42.9 million and which are mainly attributable to the sale of an investment property. The cash outflow for corporate acquisitions amounted to EUR 84.9 million in 2008 and results from the purchases of Norbco Inc., Bloksma B.V., Bliss & Co. Ltd. (the owner of International Cooling Group), as well as smaller acquisitions. The remaining payments relate to purchase price payments for acquisitions made in the past and which depend on profit levels. Cash flow from financing activities amounted to EUR 205.8 million in 2008, compared with minus EUR 50.0 million in 2007. This change is mainly attributable to the cash inflow from the issuing of a borrower’s note loan and the EUR 93.7 million reduction in outgoing payments for the repurchase of our own shares. Furthermore, GEA Group’s improved financing structure had a positive impact, which is mainly reflected in a decline in interest payments of EUR 16.8 million. At the same time, the resumed dividend payment for fiscal 2007 resulted in a cash outflow of EUR 36.8 million. In total, consequently, cash and cash equivalents increased to EUR 439.6 million as of December 31, 2008, compared with EUR 279.2 million in the previous year. Unrestricted funds amount to EUR 431.7 million taking into account restricted funds. This ensures financial independence in periods of financial crisis.

42

GEA Group Annual Report 2008

Management Report Group business performance

Reconciliation of the net position (EUR million) 12/31/2007 EBIT Depreciation

61.3 504,2 81,7

Change in Working Capital

-131,1

Interest-, pension- and tax payments

-122,7

Capital expenditure in tangible and intangible assets

-165,6

Other effects Operational effects Impact of acquisitions on net position Dividends and share buy back Payments relating to disposed operations 12/31/2008

65,6 232,1 -114,5 -38,9 -200,2 -60,2

The net position of GEA Group declined by EUR 121.5 million compared with December 2007. On the basis of an EBIT result of EUR 504.2 million and depreciation and amortization of EUR 81.7 million, EBITDA amounted to EUR 585.9 million. Negative effects for the net position arising from the continued business operations relate to cash outflows for investments in tangible and intangible fi xed assets of EUR 165.6 million and working capital changes of EUR 131.1 million. Payments for interest, pension and income tax resulted in a cash outflow of EUR 122.7 million. Other effects had a positive impact of EUR 65.6 million on the net position. Non-operating cash outflows resulted from the dividend payment for 2007 and the share repurchase program, together totaling EUR 38.9 million. Acquisitions carried out in 2008 resulted in cash outflows of EUR 114.5 million. A total of EUR 215.0 million of cash resources were required for residual processing relating to disposed operations (Dynamit Nobel, Lurgi and Lentjes). While a conclusive settlement agreement was reached for Dynamit Nobel, further cash outflows will also be required for Lentjes and Lurgi in 2009, for which provisions have already been formed in the balance sheet. The closure of Ruhr-Zink gives rise to cash inflows of EUR 14.8 million resulting from the realization of inventories and the collection of receivables. Gearing amounted to 4.1 percent as of December 31, 2008 (previous year: minus 4.3 percent). As of December 31, 2008, banks had granted GEA Group credit lines of EUR 1,160.4 million, from which loans totaling EUR 500.3 million were utilized. The unused portion of the cash credit lines consequently amounted to EUR 660.1 million, or 57 percent. A key component of these cash credit lines is a syndicated credit line with a volume of EUR 500.0 million that was pledged on a fi xed basis by 20 well-known international banks as a “confi rmed credit line” with a term of five years, as well as the borrower’s note loan of EUR 200.0 million that carries a term of three years.

GEA Group Annual Report 2008

43

Management Report Group business performance

Please refer to the notes to the accounts (pages 109 et seq. and 161 et seq.) for detailed information about the maturity, currency and interest-rate structure of debt. Furthermore, the GEA Group had performance bonds, advance payment guarantees and warranty obligation guarantees of EUR 2,464.6 million available, EUR 1,088.6 million of which was utilized. The GEA Group uses factoring and leasing. The obligations arising from leases and rentals are explained on page 182et seq. of the notes to the consolidated financial statements.

Net assets Summary balance sheet (EUR million)

as % of

Change

Change

12/31/2008

total assets

as % of 12/31/2007

total assets

(absolute)

(%)

2,424.7

47.3

2,349.0

49.5

75.7

3.2

1,331.8

26.0

1,299.7

27.4

32.2

2.5

314.4

6.1

364.9

7.7

-50.6

-13.9

2,684.3

52.3

2,382.3

50.2

302.0

12.7

19.4

0.4

16.7

0.4

2.6

15.8

5,128.3

100.0

4,748.0

100.0

380.4

8.0

Assets Non-current assets of which goodwill of which deferred taxes Current assets Assets held for sale Total assets Equity and liabilities Equity

1,455.4

28.4

1,413.7

29.8

41.7

3.0

Non-current liabilities

1,037.3

20.2

857.3

18.1

180.0

21.0

of which deferred taxes Current liabilities

88.4

1.7

87.2

1.8

1.2

1.3

2,630.6

51.3

2,477.0

52.2

153.6

6.2

5.0

0.1

-

-

5.0

-

5,128.3

100.0

4,748.0

100.0

380.4

8.0

Liabilities related to assets available for sale Total equity and liabilities

Total assets increased by 8 percent as a result of the expansion of the business volume and as a result of assets and liabilities added as a consequence of acquisitions. The rise reflects, among non-current assets, particularly a higher level of intangible assets and EUR 32.2 million of higher goodwill arising from fi rst-time consolidations. Assets including goodwill of EUR 181.2 million were acquired with the acquisitions made in fiscal year 2008. The net amount of deferred tax assets fell by EUR 51.7 million. The carrying value of investment properties fell significantly as a result of the disposal of a major item of real estate. Noncurrent liabilities rose significantly, in particular, non-current financial liabilities resulting from the drawing down of external fi nancial resources in order to fi nance acquisitions that have been made, as well as to furnish subsidiaries with liquidity.

44

GEA Group Annual Report 2008

Management Report Group business performance

The further sharp rise in business volumes in both segments resulted in an increase in current assets and liabilities. This fed through to a rise in the working capital to sales ratio to 15.3 percent from 12.9 percent. Equity rose by EUR 41.7 million in fiscal 2008. The Group equity ratio nevertheless fell to 28.4 percent, following 29.8 percent in the previous year, due to the marked rise in total assets. Assets of EUR 19.4 million held for disposal as of the reporting date concern land and buildings no longer required for operations.

General statement on business performance On a comparable basis, year-on-year growth in terms of revenue, EBIT, EBT and EBIT margin was once again exceeded in the 2008 fiscal year in the continued operations. Only with respect to order intake and revenue was GEA Group unable to fully achieve its forecasts due to the deterioration of the economic situation in the fourth quarter. In the discontinued operations area, Ruhr-Zink was closed as of December 31, 2008. The closure costs had a negative impact on Group earnings. Once again, high losses were incurred in 2008 with respect to ongoing order processing on the part of Lentjes GmbH, which was sold in 2007. The market position of GEA Group companies improved further in almost all divisions. The GEA name enjoys global recognition for innovative and high-quality machinery, components and process plants in its relevant markets. The new brand structure along with the successful GEA umbrella brand for all Group companies is already having a positive effect on business trends, and will further strengthen the Group in the future.

GEA Group Annual Report 2008

45

Management Report Employees

Employees The Executive Board of GEA Group Aktiengesellschaft would like to thank all of the Group’s employees for the continued strength of their commitment and productive cooperation in 2008. We would also like to extend these thanks to employee representatives, both in Germany and abroad, for their responsible and constructive contributions to meeting the challenges we jointly face.

Employees (balance sheet date) *

12/31/2008

Energy and Farm Technology

12/31/2007

7,091

6,230

Process Technology

14,015

12,902

Total

21,106

19,132

Other

221

212

21,327

19,344

GEA Group * Full-time equivalents (FTEs), excl. apprentices/trainees and inactive employees

The number of employees at GEA Group rose by 745 during the reporting period as a result of organic growth. Acquisitions and other changes in the scope of consolidation increased the number of employees by 1,238. As of December 31, 2008 the GEA Group employed 613 apprentices and trainees compared with 515 at the end of 2007. On this basis, the apprentice and trainee ratio in Germany amounted to 5.7 percent (previous year: 5.4 percent). This figure is once again ahead of our own requirements and underscores GEA Group’s long-term social commitment in the area of professional training.

Employees by region (in %)

2 11 14 41

32 2008 34

40

13

11

2

2007 36 2006

41 11 10 2

Germany

46

GEA Group Annual Report 2008

Europe

Americas

Asia, Oceania

Africa

Management Report Employees

Special payment In the light of the Group’s success in the 2008 fiscal year, the Executive Board – as previously for the 2007 fiscal year – has resolved to make a special payment to all employees below contract levels 1 and 2. The level of the special payment once again amounts to EUR 80, EUR 160 and EUR 240 per employee depending on the average purchasing power in the relevant country. The total volume of the special payment amounts to EUR 5.4 million.

“i²m” - Employee-driven ideas and improvement management scheme With the conclusion of the global introduction of the i²m ideas and improvement management scheme in 2008, employees around the world can now contribute actively with their ideas to an improvement in all Group areas. The large extent of participation in i²m is evidenced by the 12,747 ideas submitted, of which 9,237 ideas were conclusively examined by the end of 2008. Of these, 3,912 ideas have already been implemented. Overall, 34.4 percent of all employees have already submitted improvement suggestions, and many have even submitted several proposals. Along with the targeted commercial benefit, i²m strengthens the corporate culture through the active inclusion of employees and their motivation in the cooperative structuring of all company areas. This commitment was acknowledged in 2008 with total prize money for ideas that have been realized of EUR 969,361, recognition-prizes totaling EUR 88,670, as well as numerous non-cash prizes.

GEA Performance Share Plan GEA Group Aktiengesellschaft launched the third tranche of the GEA Performance Share Plan with effect as of July 1, 2008, including contract level 3 managers for the fi rst time along with contract levels 1 and 2 managers. The participation rate rose from 73.4 percent in 2007 to 81.0 percent in 2008 despite the significantly larger group of persons entitled to participate. As in the previous year, all participants were required to invest their own money equivalent to 20 percent of their allotted “Performance Shares”. Details of this program can be found on page 54 of the management report, and in section 7.3.4 of the notes to the financial statements.

Job rotation aids management development GEA Group filled a good 75 percent of its vacant management positions internally in 2008. In particular, the tool of job rotation, whereby managers assume new management roles according to a plan, proved extremely helpful in this respect. The focus is on making postings to different business areas, both in terms of segments and divisions, as well as internationally.

GEA Group Annual Report 2008

47

Management Report Employees

Management Feedback in Europe As an addition to the management evaluation scheme that has already been instituted, a Management Feedback scheme was launched across Europe, which entails employees assessing their managers with respect to their management qualities. The assessment criteria comprise communications, trust, job-related management behavior, support, and orientation to performance and results. Individual development measures are agreed and performed following the evaluation of the results. The participation rate in the fi rst round amounted to 85 percent. The Management Feedback scheme will be launched globally in 2009 and will be repeated regularly in subsequent years.

Boosting employer attractiveness GEA Group is committed to the areas of research and training in order to ensure that the company secures a long-term supply of qualified and motivated employees. For example, GEA Group is a member of the Founders’ Association for German Science (Stifterverband für die deutsche Wissenschaft), a joint initiative on the part of German business interests to promote science and research. Jürg Oleas, CEO of GEA Group Aktiengesellschaft, is a member of the Executive Board of this association. GEA Group is also involved in schools with the aim of promoting an interesting technology and the engineering profession at as early as the school age. For example, GEA joins forces with the Ruhr Regional Initiative Group (Initiativkreis Ruhrgebiet) and invites over 100 schoolchildren in the 14 to 15 year age range to its Group headquarters every year as part of a “Dialogue with Youth” project. Schoolchildren have the opportunity at this event to enter into an afternoon’s dialogue with trainees, apprentices, engineers and managers from GEA Group in order to gain an insight into the professional and working worlds of these staff members. This may help them to reach a decision concerning their future profession and life path. Jürg Oleas also regularly takes the opportunity to personally advertise the multifaceted nature of the engineering profession at this event. Besides this, GEA Group naturally cooperates with universities and research institutes around the world, is present at job fairs, and conducts campus recruitment.

48

GEA Group Annual Report 2008

Management Report Assets, financial position and results of operations of GEA Group Aktiengesellschaft

Assets, financial position and results of operations of GEA Group Aktiengesellschaft As a supplement to the report on the Group’s business, the following section covers the performance of the holding company, GEA Group Aktiengesellschaft. The annual financial statements of GEA Group Aktiengesellschaft have been prepared according to the regulations contained in the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). They are presented here in summarized form. Net assets of GEA Group AG (HGB) (EUR million)

in % 12/31/2008

of total assets

in % 12/31/2007

of total assets

Assets Intangible assets

1.7

0.0

0.3

0.0

Property. plant and equipment

5.5

0.2

7.0

0.3

Financial assets

2,664.5

75.2

2,324.3

75.6

Non-current assets

2,671.7

75.4

2,331.6

75.9

609.7

17.2

579.7

18.9

0.3

0.0

0.4

0.0

Receivables and other assets Securities Cash and cash equivalents

259.4

7.4

160.7

5.2

Current assets

869.4

24.6

740.8

24.1

Prepaid expenses

0.5

0.0

0.6

0.0

3,541.6

100.0

3,073.0

100.0

Issued capital

496.9

14.0

496.9

16.2

Additional paid-in capital

250.8

7.1

250.8

8.2

Retained earnings

248.4

7.0

66.2

2.1

Distributable profit

74.0

2.1

36.8

1.2

1,070.1

30.2

850.7

27.7

0.4

0.0

0.0

0.0

Total

Equity and liabilities

Equity Special reserve Provisions

299.0

8.5

274.2

8.9

Liabilities to banks

415.7

11.7

162.4

5.3

1,740.0

49.1

1,778.8

57.9

16.3

0.5

6.7

0.2

2,172.0

61.3

1,947.9

63.4

0.1

0.0

0.2

0.0

3,541.6

100.0

3,073.0

100.0

Liabilities due to subsidiaries Other liabilities Liabilities Deferred income Total

The increase in total assets results from a change to the structure of the company’s shareholdings, as well as to the greater extent of Group fi nancing. Among fi nancial assets, four companies in which GEA Group Aktiengesellschaft holds an equity interest were structured in a new way and a share exchange with a sub-holding company was carried out in this

GEA Group Annual Report 2008

49

Management Report Assets, financial position and results of operations of GEA Group Aktiengesellschaft

connection. This restructuring also allowed commercially connected activities to be brought together in legal terms. As part of Group fi nancing, a borrower’s note loan and further bank loans were raised, which resulted in an increase to liabilities to banks of EUR 253.3 million. The bank loans were also used to issue further long-term loans to subsidiaries. This resulted in an increase in loans extended to EUR 83.8 million. The equity ratio amounted to 30.2 percent (previous year: 27.7 percent). Since GEA Group Aktiengesellschaft is a pure management holding company, the following cash flow statement is meaningful to only a limited extent. Financial position of GEA Group AG (HGB) (EUR million)

2008

2007

Cash flow from operating activities

-18.5

19.4

Cash flow from investing activities

-97.2

-175.7

Cash flow from financing activities

214.4

176.2

Cash

259.4

160.7

The higher granting of short-term loans to subsidiaries, and repayments to subsidiaries as part of cash pooling, resulted in a negative cash flow from operating activities. Compared with the previous year, cash flow from investing activities improved mainly as a result of the lower increase in loans extended. Cash flow from financing activities resulted from the raising of bank loans, minus the dividend payment and the share repurchase. The financial position is mainly affected by the provision of financial resources for the subsidiaries’ operating activities, as well as the cash pooling.

50

GEA Group Annual Report 2008

Management Report Assets, financial position and results of operations of GEA Group Aktiengesellschaft

Results of operations GEA Group AG income statement (HGB) (EUR million) Other operating income Personnel expenses

12/31/2008

(%)

12/31/2007

(%)

69.4

21.1

50.1

17.1

-24.6

-7.5

-25.8

-8.8

Depreciation and amortization of tangible and intangible fixed assets

-1.1

-0.3

-7.0

-2.4

Other operating expenses

-55.1

-16.8

-64.4

-22.0

Result from shareholdings

327.6

100.0

293.1

100.0

Net interest expense

-52.5

-16.0

-46.1

-15.7

Profit from ordinary activities

263.7

80.5

199.9

68.2

-5.4

-1.6

-2.2

-0.7

258.3

78.9

197.7

67.5

0.0

0.0

3.7

1.3

Income taxes Net income for the year Profit carried forward Withdrawal from the revenue reserve Offset with shares acquired for cancellation Addition to other revenue reserves Distributable profit

2.1

0.6

65.3

22.3

-2.1

-0.6

-163.7

-55.9

-184.3

-56.3

-8.0

-8.0

74.0

22.6

36.8

12.6

The results of operations improved across all income and expense items with the exception of the net interest expense and the higher tax expense. Other operating expenses of EUR 55.1 million mainly contain costs relating to third-party deliveries and supplies, expert reports and consultancy services, valuation adjustments, travel costs and other personnel costs. In the prior year other operating expenses contained higher costs for expert reports and consultancy services due to disposal of operations. The result from shareholdings is composed of income and expenses arising from profit transfer agreements, income from the exchange of shareholdings, dividends, income from deeds of release for subsidiaries and write-downs applied to the carrying values of shareholdings. The net interest expense deteriorated by EUR 6.4 million due to a higher level of borrowing.

GEA Group Annual Report 2008

51

Management Report Assets, financial position and results of operations of GEA Group Aktiengesellschaft

Proposed appropriation of profit GEA Group Aktiengesellschaft reports annual net income of EUR 258.3 million according to the German Commercial Code method of accounting (HGB). According to § 23 Paragraph 3 of the articles of association, the supervisory and executive boards are permitted when adopting the annual financial statements to transfer either part or the entirety of the net income for the year to retained earnings while taking into account § 58 Paragraph 2 Clause 3 of the German Stock Corporation Act (AktG), and to the extent that the total of other retained earnings does not exceed half of the issued share capital. The executive and supervisory boards have transferred EUR 184.3 million to other retained earnings, and recommend that the Annual General Meeting approves the distribution of a dividend of EUR 0.40 per share to shareholders from the distributable profit of EUR 74.0 million, given a total of 183,807,845 shares, and to carry the remaining profit amount of EUR 0.5 million forward to the new account. The payment of the dividend is made without deducting local withholding tax and the Solidarity Surcharge.

Explanatory notes pursuant to § 289 Paragraph 4 and § 315 Paragraph 4 of the German Commercial Code (HGB) Composition of issued capital and limitations of rights The issued capital of GEA Group Aktiengesellschaft remained unchanged at EUR 496,890,368.79 as of December 31, 2008. All of the shares are common stock. They comprise 183,807,845 no-par-value bearer shares. The rights and obligations relating to the shares are derived from the German Stock Corporation Act (AktG). The Executive Board is not aware of any restrictions on voting rights or the transfer of shares. The participation in the GEA Performance Share Program requires that participants make their own investments in GEA shares, which are subject to a mandatory holding period of three years. The right to participate in the program lapses if this holding period is infringed.

Shareholdings exceeding 10 percent of the voting rights Including voting rights held through subsidiaries, Allianz SE (Munich, Germany) held a total of 10 percent of the share capital of GEA Group Aktiengesellschaft as of December 31, 2008. Subsidiaries of Allianz SE that hold these voting rights either directly or indirectly are Aiolos Vermögensverwaltungsgesellschaft mbH (Munich, Germany), Süddeutsche Industrie-Beteiligungs-GmbH (Frankfurt am Main, Germany), Dresdner Bank Aktiengesellschaft (Frankfurt am Main, Germany) and Allianz Finanzbeteiligungs GmbH (Munich, Germany).

52

GEA Group Annual Report 2008

Management Report Assets, financial position and results of operations of GEA Group Aktiengesellschaft

Regulations regarding the nomination and recall from office of members of the Executive Board, and regarding modifications to the articles of association Members of the Executive Board are appointed and removed pursuant to §§ 84, 85 of the German Stock Corporation Act (AktG) in combination with § 31 of the Codetermination Amendment Act (MitbestG). According to § 20 Paragraph 1 of the articles of incorporation of GEA Group Aktiengesellschaft, amendments to the articles of incorporation, where legally permissible, may be adopted by a simple majority of the voting rights present at the vote. According to § 21 of the articles of association, the Supervisory Board is authorized to adopt amendments and additions to the articles of association that affect solely their wording. Amendments to the articles of association are also governed by § 179 of the German Stock Corporation Act (AktG).

Executive Board’s authorization to issue and repurchase shares Information on conditional capital and authorized capital can be found in the section on equity (Section 7.1, page 144 et seq.) in the notes to the consolidated fi nancial statements. GEA Group Aktiengesellschaft was authorized by a resolution adopted by the Annual General Meeting on April 23, 2008 to repurchase its own shares amounting to up to a total of 10 percent of its share capital pursuant to § 71 Paragraph 1 Number 8 of the German Stock Corporation Act (AktG). The authorization is valid until October 22, 2009. The shares may be purchased either through the stock market or by means of a public purchase offer to all shareholders. The shares may then be recalled, used to service option bonds or convertible bonds, transferred to third parties as part of corporate mergers or the acquisition of companies, or disposed of in another manner. Further details of the resolution adopted by the 2008 Annual General Meeting can be found in the invitation to the meeting, which was published in the electronic Federal Gazette on March 14, 2008.

Material agreements conditional on a change of control following a takeover bid In the event of a change of control, individual lenders of the syndicated loan facility of EUR 500 million are entitled to decline any new drawings (except rollover loan facilities). The syndicate banks may call in any amounts already being borrowed and terminate the respective credit line by providing 20 days’ notice. In the instance of a change of control, the lenders of a EUR 200 million borrower’s note loan are entitled to demand early payment of their loan receivable including interest accrued as of the due date of the early repayment. The borrower determines the due date. The due date may be neither fewer than 60 days nor more than 90 days following the time at which the borrower was informed of the change of control and informed the lenders accordingly through the paying agent.

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Management Report Assets, financial position and results of operations of GEA Group Aktiengesellschaft

The lender of a guarantee facility of USD 100 million provided to subsidiaries in the US may demand negotiations on new agreements within 30 days of a change of control. If no agreement is reached, the lender may with immediate effect demand collateral security for all outstanding credits by way of bank guarantee. All Performance Shares arising from the GEA Performance Share Plan expire in the instance of a change of control. Managers who have participated in the program receive compensatory payment for the expired Performance Shares. In all cases this corresponds to the allocated target value. A change of control within the meaning of these agreements and the GEA Performance Share Plan is deemed to have occurred particularly if a majority of voting rights or shares in the company have been transferred to a single person or group of persons.

Compensation agreements with Executive Board members or employees Executive Board employment contracts contain regulations concerning the calculation of bonuses in the event of a change of control. Related details can be found in the Remuneration Report to be found on page 74 et seq. Further compensation agreements with employees exist with respect to the Performance Shares arising from the GEA Performance Share Plan, as presented in the paragraph above.

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GEA Group Annual Report 2008

Management Report Report on opportunities and risks

Report on opportunities and risks Risks and the risk management system The risk management system used by the GEA Group covers all Group companies. Quarterly risk reports and a very rapid internal reporting system throughout the Group ensure that decision-makers at both divisional and holding company levels are promptly informed about any risks pertaining to future development. Risk management tools such as the Risk Assessment and Advisory Committees (RAAC), a reporting system with consolidated budget financial statements, monthly consolidated financial statements, and regular meetings of the Executive board together with divisional managers, are used to identify and analyze the various risks. So-called “Risk Boards” formed at both the divisional and the holding level cover the specific requirements inherent in the project business. Before any binding offer is submitted or agreement is concluded, specialists from various departments carefully examine the commercial and contractual terms of potential orders to ensure that uncontrollable risks are avoided. By critically investigating the opportunity and risk profi le of offers, the risk management system comes into play before risks arise. No contracts are signed where there is an inappropriate relationship between opportunities and risks. The GEA Group’s risk management system not only provides early identification of risks jeopardizing the continued existence of the company as prescribed in the German Control and Transparency of Companies Act (KonTraG), but also covers all risks that could have a significant negative impact on the earnings of either a division or the Group. The internal audit department regularly reviews the application of the risk management system at all levels. To the extent that the criteria for recognizing a liability were met, all risks identified in day-to-day business were adequately provided for in the annual fi nancial statements. The following section provides details of risks currently identified.

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Management Report Report on opportunities and risks

General statement on the risk position and changes compared with 2007 GEA Group continued to report excellent growth in 2008, achieving record levels in terms of revenue and operating earnings (EBIT). Depending on their extent, the divisions’ high order backlogs predominantly secure a high level of utilization until the spring or summer of 2009, and in part also beyond. Given thechanges in the economic environement, stepped action plans have been prepared that also entail reduction in the company’s own workforce should this prove necessary. GEA Group’s discontinued operations gave rise to a number of risks during the course of the year that have been included in its net results. Overall, no risks have been identified that would give rise to concerns about the continued existence of GEA Group and GEA Group Aktiengesellschaft.

External risks Risks arising from the economic environment On the procurement side, commodity prices, particularly for titanium and copper, as well as for stainless steel, remained at high levels in 2008, although price declines were experienced since the fourth quarter of 2008. They were largely passed on to customers thanks to continued strong demand. A declining price level in procurement markets is anticipated for 2009 due to falling demand, whereby commodity prices might be affected to a greater extent. We are not however expecting any significant impact on net income because ongoing master agreements include price escalation clauses. It must nevertheless be assumed that pressure on prices on the sales side will also intensify. On balance, both effects are expected to have a slightly negative impact on pricing quality and on earnings. In order to limit potential negative effects on profitability from the change in the economic situation, a start has been made with the development of sets of measures, which are further referred to below. These measures might result in on-line charge, particularly in the next fiscal year, if they are implemented. The company’s risk management system constantly observes country-specific confl ict situations that might give rise to risks for the Group. It is nevertheless difficult to quantify the risks arising from such situations. We are not however expecting risks with any significant impact on the Group’s earnings.

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Sector risks GEA Group and its divisions serve a large number of markets, many of them subject to differing investment and innovation cycles. Although risks specific to certain sectors and regions may have an adverse effect on the earnings of individual divisions, we expect them to have only a limited impact on the results of the Group as a whole. The company’s strategic planning, which is reviewed every year, supports the early identification of such risks. Considering the decline in demand in the fourth quarter of 2008, various development scenarios were formulated before the end of the last fiscal year for the individual divisions for the years 2009 to 2011. The related potential commercial effects were then calculated employing simulations. Depending on the individual results of this exercise, the divisions have developed stepped sets of measures in order to be prepared for all eventualities relating to future economic trends. This stepped approach takes into account the fact that the current uncertainty in key GEA Group customer sectors is resulting in delays of orders, but not in a fundamental weakness in expected long-term growth in demand.

Legal risks The lawsuit brought by the insolvency administrator of Polyamid 2000 AG relating to the repayment of an amount of EUR 164.6 million, including VAT, for the construction of a carpet recycling plant was the subject of a judgment made by the Federal High Court of Justice (BGH) on July 9, 2007. The plaintiff was deemed to have no entitlement to the repayment of the full compensation for work performed. A potential claim exists only to the extent that the remuneration received is deemed to have been above the usual or appropriate level of remuneration according to legislation governing unjustified enrichment. The case was referred to the Higher Regional Court (OLG) of Frankfurt am Main. The Higher Regional Court rejected the lawsuit, and has not permitted an appeal to the Federal High Court of Justice. The plaintiff has submitted a complaint relating to nonadmission to the Federal High Court of Justice. In connection with the conclusion of the control and profit-transfer agreement between Metallgesellschaft AG and the former GEA AG in 1999, an appeal is still pending before the District Court in Dortmund regarding the appropriateness of the exchange offer made to shareholders of the former GEA AG.

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Management Report Report on opportunities and risks

The appeal launched at the District Court in Dortmund after the squeeze-out resolution of the Annual General Meeting of the former GEA AG was concluded with the court-recorded settlement on July 2, 2008. The settlement entails a rise in the cash settlement from EUR 43.33 (per preference share) and EUR 48.15 (ordinary share) to a uniform EUR 53.00 plus interest. There are sector-specific legal cases relating to the former subsidiaries of the Plant Engineering business in connection with the acceptance and processing of orders, whose disputed sums partly reach several millions of euros. As part of the disposal of the Lentjes Group, GEA Group effected a wide-ranging release of the purchaser from various risks arising from existing orders and legal disputes. There is currently a discordence between the parties concerning foreign currency matters relating to the level of loss compensation to be granted. There are contractual arrangements for arbitration proceedings to be launched should consensus fail to be achieved with respect to these matters. Further legal proceedings or official investigations have been instituted, or may be instituted, against companies of the GEA Group as a result of earlier disposal activities and their ongoing business operations. As part of the disposal of the Lurgi Group to the Air Liquide Group of France, an arbitrator’s expert opinion process and arbitration proceedings have been started relating to a potential price adaptation reflecting differing opinions relating to various items in the reference balance sheets. Appropriate provisions have been formed for risks arising from the legal disputes described above, as well as for others. It is nevertheless impossible to predict the outcome of individual cases with any degree of certainty. Consequently, it cannot be excluded that the conclusion of these lawsuits may in some cases incur expenses that exceed the provisions potentially formed for such purposes.

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Management Report Report on opportunities and risks

Internal risks Business-performance risks In 2008, further risks materialized relating to discontinued operations. These risks are discussed in this year’s management report or in the previous years’ management reports. Defined risks related to selected long-term construction contracts have remained with the Group after the disposal of the Lurgi and Lentjes divisions. In both cases, Lurgi and Lentjes,the projects concerned are expected to be completed during the course of 2009. There is an extensive risk management system at both the holding company and divisional levels to precisely monitor risks related to orders. Appropriate provision for all foreseeable risks has been made in our accounts. The decline in order intake registered in the fourth quarter of 2008 reflects to a large degree a comparatively small number of high-volume orders, but also partially reflects the components business. While the reduced number of complex projects reduces risks arising from project execution, the continuation of weak order intake may have a negative impact on medium-term earnings as a result of the underutilization of capacities. Stepped sets of measures have been developed, some of which have already been implemented, in order to mitigate such effects. Besides more intense competition, the deterioration of the economic situation is also resulting in a rise in credit default risk. Such risk is countered using credit insurance, as well as a critical examination of customers and suppliers’ creditworthiness and, on a general basis, payment terms before orders are accepted.

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Management Report Report on opportunities and risks

Financial risks Basic principles of financial risk management The Executive Board has created an effective set of rules in the form of guidelines to control fi nancial risks across the Group and thereby hedge, or largely limit, the risks involved. These rules clearly define the objectives for the protection of assets, the elimination of security gaps, and efficiency improvements in the identification and analysis of risks, together with the relevant organizational structures, responsibilities, and areas of expertise. The rules follow the principles of function separation, transparency, prompt documentation and system security. As a group that operates globally, GEA Group is exposed to currency risk, interest rate risks, risks relating to the prices of goods, credit risks and liquidity risks as part of its normal activity. Financial risk management aims to reduce these risks through the appropriate use of derivative and non-derivative hedging instruments.

Foreign currency risks Because of the international nature of GEA Group’s business, its cash flows are denominated not only in euros but also in a number of other currencies, particularly the US dollar. Hedging the resultant exchange-rate risk forms a major part of our risk management operations. A standardized Group-wide policy forms the basis of the GEA Group’s centrally steered currency management strategies. This states that all Group companies must hedge their foreign-exchange exposures at the time they arise in order to fi x prices on the basis of hedging rates. The hedging periods are determined by the term to maturity of the hedged items. The term of currency derivatives used is usually no more than twelve months, but may go well beyond this period in exceptional cases. Although currency risk on individual contracts is usually excluded by means of hedging, significant medium- and long-term movements in exchange rates may influence sales opportunities outside the Eurozone. Subsidiaries based in the Eurozone are obliged to tender to the fi nance department at the GEA Group head office all outstanding exposures relating to transactions in goods or services in major transaction currencies. Most of these tendered exposures are passed on directly to banks, depending on the derivatives’ hedging purpose and the related nature of their accounting treatment, and provided their maturities are matched; otherwise they may be hedged as part of a portfolio. The hedging of financial transactions and transactions conducted by our subsidiaries outside the Eurozone is also closely coordinated with the finance department at the Group head office. Contracts in emerging markets are usually invoiced in US dollars or euros.

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Interest rate risks Because of the international nature of our business, GEA Group raises liquidity and invests funds in the international financial and capital markets in various currencies – mainly euros and US dollars – and with varying maturities. The resultant investments and financial liabilities are in general exposed to interest rate risk, which our centralized interest rate management operations evaluate and manage. In order to hedge this risk, GEA Group may use derivative financial instruments on a case-by-case basis to minimize the interest rate volatility and financing costs of the hedged items. Only the finance department at the Group head office is permitted to enter into such interest rate instruments.

Risks relating to the prices of goods GEA Group requires various metals such as titanium, copper, aluminum and steel. Depending on the market situation, commodity purchase prices may fluctuate significantly. Longterm supply agreements are concluded with various suppliers in order to hedge risk arising from changes in the prices of goods. Ruhr-Zink has concluded commodity futures transactions in order to hedge its obligations arising from long-term supply agreements following the closure of its production. Copper options also relate to an acquired company, that predate its acquisition by GEA Group. Besides this, there are no commodity derivatives within the GEA Group.

Credit risks Financial instruments are generally exposed to default risk arising from potential nonsatisfaction on the part of the other contractual party. Default risk on customer receivables is countered using a standardized internal risk board procedure. Besides this, active receivables management including the use of genuine factoring and credit insurance is used. In the export business, confirmed and unconfirmed letters of credit, as well as warranties, guarantees, and covenants are implemented, including from export credit agencies such as Hermes. Besides local monitoring by the relevant subsidiary, GEA Group also supervises the most important customer relationships at the holding company level in order to better manage the potential accumulation of risks. Trade receivables exist as of December 31, 2008 with respect to a large number of customers from various sectors and regions, thereby avoiding significant risk concentration. Where specific default risks exist, they are reflected through valuation adjustments. In the financial area, financial instrument transactions are agreed solely with well-known financial institutions in order to minimize default risks. Maximum default risk is limited to fair value.

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Management Report Report on opportunities and risks

Liquidity risks Liquidity risk for the GEA Group exists with respect to the non-satisfaction of payment obligations due to an insufficient availability of liquid funds. The management of this risk is the task of GEA Group Aktiengesellschaft. Arrangements are made for liquid funds, and credit lines are managed, on the basis of multi-year financial planning, as well as on the basis of rolling liquidity planning. GEA Group Aktiengesellschaft makes the funds available internally to Group companies according to their requirements. Cash pools have been set up in various countries in order to optimize the use of the liquid funds and the drawing down of loans within the GEA Group.

Taxation risks Applicable national tax legislations may affect the usability of loss carryforwards and consequently both the value of deferred taxes capitalized in the consolidated fi nancial statements and current taxation. Besides this, future changes in the share ownership structure may significantly reduce or render impossible the future utilization of German loss carryforwards (§ 8c German Corporation Tax Act [KStG]). The usability of US loss carryforwards could also be restricted by changes in GEA Group Aktiengesellschaft’s shareholder structure, since the provision of Section 382 of the IRC (Change of Ownership) applies to GEA Group Aktiengesellschaft in the US.

Opportunities GEA Group is Germany’s largest listed mechanical engineering group and is entering the 2009 fiscal year on a solid basis. The changes made in recent years are bearing long-term fruit for the GEA Group. Today the Group is focused on the basic process technologies of heat and mass exchange. The core business comprises high quality machinery, components and systems for the most varied types of process technologies. GEA Group with its innovative technologies is a leader in both of these stable markets. GEA Group companies enjoy a local presence on international growth markets. Its sales sectors are largely resistant to the effects of the international financial crisis since the trend towards processed foodstuffs will continue, energy will continue to be used and pharmaceuticals will remain in demand. The Group’s healthy liquidity structure also ensures that a high degree of confidence is entrusted in the reliability of the GEA Group. GEA Group is also a strong and capable partner for all customers on this basis, even during the tense global economic situation. Around 50 percent of the Group’s products are supplied to the stable foodstuffs and beverages industries. Further key sales sectors include the energy sector, the pharmaceuticals, chemicals and petrochemicals industry as well as the air treatment industry. Particularly where the production of high-quality and non-perishable foods is concerned, GEA Group of necessity benefits in many areas of its business from continued global population growth. The sustained economic expansion in highly populous countries such as Brazil, India, China

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and Mexico continues to boost purchasing power there. This is benefiting the food and pharmaceutical industries in particular. GEA Group is represented in these countries and sectors through various companies and through a broad range of products and system solutions. Besides these economies, the markets of Western European industrial countries, as well as the Middle East and Eastern Europe, are among the main areas of the Group’s activities. In these regions too, GEA Group’s sales sectors are largely experiencing stability despite the financial crisis. Besides the foodstuffs industry and the pharmaceuticals sector, the energy sector will also report stable growth over the next few years. Energy-producing and energy-processing industries must continue their expansion in order to satisfy future demand due to rising standards of living. This can be seen most impressively in the regions of India, China and South Africa. At the same time, however, industrial countries are required to renew and replace the large base of 30 to 40 year-old power plants. The medium-term recovery of oil prices will also promote investments in the petrochemical sector (oil shale). Groundbreaking technologies from GEA Group will open up new market opportunities in this field. The court ruled in favor of GEA Group Aktiengesellschaft in the arbitration proceedings against US-based Flex-N-Gate Corp., Urbana, Illinois, on September 15, 2006. This ruling means Flex-N-Gate is obligated to compensate GEA Group Aktiengesellschaft for the losses it incurred in connection with the collapse of the sale of the Dynamit Nobel Plastics business to Flex-N-Gate in the autumn of 2004. The second part of the case, when the level of damages to be paid to GEA Group Aktiengesellschaft will be determined, is still pending. The final judgment regarding the level of compensation in this matter is expected during the course of the 2009 fiscal year. Arbitration proceedings launched by GEA Group against the Ukraine at the World Bank arbitration court (International Centre for the Settlement of Investment Disputes - ICSID) was registered on November 21, 2008. Proceedings will start in spring 2009. This matter relates to the enforcement of an International Chamber Of Commerce (ICC) arbitration award from 2002 relating to a low double-digit amount in millions that is due from a state affi liated Ukrainian company. The background to the ICC’s arbitration award, which fully vindicated GEA Group Aktiengesellschaft, was the disappearance of large diesel oil supplies that a former GEA Group Aktiengesellschaft subsidiary had delivered to the Ukraine. GEA Group Aktiengesellschaft accuses the Ukraine of having hindered the enforcement of the ICC arbitration award in a way that is tantamount to illegal expropriation, and in breach of the investment convention existing between the Federal Republic of Germany and the Ukraine.

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Management Report Events after the balance sheet date

Events after the balance sheet date The distribution of voting rights among GEA Group Aktiengesellschaft shareholders has changed as a result of the sale of Dresdner Bank AG to Commerzbank AG. Allianz SE, Munich, Germany, holds a voting right share of only 2.47 percent since January 12, 2009. The voting rights share of Commerzbank AG, Frankfurt am Main, Germany, rose to 7.83 percent. Details concerning changes to the distribution of voting rights can be found in the notes to the single-entity financial statements of GEA Group Aktiengesellschaft on page 28. GEA Group acquired the company Eurotek Engineering Ltd., Norwich, United Kingdom, as of January 16, 2009. Eurotek operates in the area of refrigeration and freezing technology for foodstuff production, and generated revenue of around EUR 8 million in the 2007 fiscal year with a workforce of 21 employees. Eurotek’s main activities comprise the development, installation and servicing of industrial refrigeration plants such as spiral, tunnel or carton freezing systems. GEA Group acquired the company Intec USA which is based at Durham, North Carolina, USA, as of January 30, 2009. Intec produces carton freezing systems, and generated revenue of EUR 8 million in the 2008 fiscal year with a workforce of around 20 employees.

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Management Report Outlook

Outlook Economy Weaker economic prospects in Western industrial countries are being accompanied by a slowdown in production growth in emerging economies. The Kiel Institute for the World Economy (ifw) has cut its 2009 forecast for real growth in global GDP to 0.4 percent. A decline of prospectively 1.8 percent is anticipated for all industrial countries taken together and a drop of even as much as 2.7 percent is expected for the Eurozone. The negative effects on the global economy might gradually abate over the course of the year, to make way for new expansive forces from 2010. Year-average real global GDP growth of 1.9 percent is then expected and of 0.6 percent for industrial countries. Leading research institutes cut their 2009 forecast for real GDP growth in Germany from the 0.2 percent published in their joint autumn survey, to a level of between minus 2.0 and minus 2.5 percent in December. In its annual economic report, the Federal Government also cuts its corresponding forecast to minus 2.2 percent. GEA Group’s markets in the world’s growth regions will nevertheless continue to grow, even if only at a slight rate in 2009. More favorable climate conditions and the prospective improvement in the political situation will allow South and Central America, in particular, to become the world’s leading suppliers of food. Over the long term, Africa could emerge as a more important sales market for GEA. As a result of the growing uncertainty of many customers both in Germany and abroad, the German Engineering Federation (VDMA) expects a real decline averaging 7 percent in the production of machinery and plant, despite high order books. There will nevertheless be extreme discrepancies between sectors and regions. The Federation assumes demand in other parts of the world will compensate to some extent for the weakness in North America and Europe.

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Management Report Outlook

Business outlook Irrespective of the economic environment, global population growth, rising household incomes in emerging economies and the related growing demand for food, medicines and energy, will continue to secure for the Group a less cyclical order book in the medium term. As far as sales regions are concerned, we anticipate significant economic weakness in North America and Western Europe and we also expect a fall in the rate of economic growth in emerging markets. This leads us to assume a decline in our revenue, which will have a corresponding impact on operating earnings. Uncertainties relating to global macroeconomic growth make it impossible to prepare quantifiable forecasts at the present time. GEA’s current order backlog continues to reflect good margin quality. Our focus in 2009 will continue to be on order security and good margins rather than the acceptance of orders at any price. Based on order intake levels between October 2008 and February 2009, we anticipate the following trends in individual sales markets: – a moderate decline in investment activity in the food manufacturing and beverages industry, which represents around one half of GEA Group revenue; – an approximately unchanged level of investment activity in energy generation as a result of more favorable infrastructure and energy costs; as well as – a marked downturn in the oil and gas business. Revenue in both segments will be below the level of 2008 due to the fall in the order intake. In the Energy and Farm Technology Segment, the high order book equivalent to around 56 percent of 2008 revenue will have a compensatory effect due to the fact that some orders have long lead times. The order book in the Process Technology Segment is equivalent to around 43 percent of 2008 revenue. Although lead times in this segment are shorter, from today’s perspective revenue will fall to a similar extent as in the Energy and Farm Technology Segment due to acquisitions made in the second half of the year. We nevertheless intend in 2009 to continue to pursue our strategy in both segments of acquiring small and mediumsize companies that supplement GEA’s portfolio either technologically or regionally. As early as November 2008, this prompted the Executive Board to start to implement a package of measures to counter the declining earnings that are anticipated to result from this trend. These include a cutback in overtime, secondary help and short-term employment contracts and additional flexibility with respect to working hours and short-time working. Some locations have already been closed or amalgamated in order to boost productivity.

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Management Report Outlook

Short-time working will be introduced at additional locations in 2009 and there will be significant layoffs among both temporary help workers and permanent employees. Administration costs are also being adjusted to the lower business volumes. The aim is to secure the Group’s free cash flow through a reduction of working capital. This has already been reflected through a correspondingly stronger weighting in the bonus calculation for managers for 2009. Selected investments in property, plant and equipment will be postponed in order to conserve liquidity. In overall terms, the Executive Board anticipates restructuring expenses of up to EUR 40 million in 2009. As of December 31, 2008, GEA Group has access to unrestricted cash and overnight deposits of EUR 431.7 million and as yet unutilized credit lines of EUR 660.1 million. We nevertheless anticipate cash outflows from provisions of EUR 350 million to EUR 400 million in 2009 for the discontinued operations. Over the longer term, we expect our markets to grow in real terms at between 3 and 6 percent on average, significantly above the real rate of growth of global GDP. We nevertheless intend in 2009 to continue to pursue our strategy of acquiring small and medium-size companies that supplement GEA’s portfolio either technologically or regionally. The operating measures described above to counter the economic downturn will prove unable to fully compensate for the pressure on earnings, however. It is impossible to issue an qualified forecast today as to whether and to what extent the global economy will recover in 2010. Due to the robustness of GEA Group’s end-markets, we are nevertheless assuming a relative improvement in overall terms compared with the general trend within the mechanical engineering sector. The Executive and Supervisory Boards are proposing that the Annual General Meeting approves a dividend of EUR 0.40 per share for 2008. As far as 2009 is concerned, we are aiming for a dividend adjusted to the trend in Group earnings. In the longer term, particularly following the normalization of the economic situation, our intention is to raise the total Group EBIT margin from today’s 9.7 percent to above 10 percent, and to distribute a dividend equivalent to approximately one third of Group earnings.

Bochum, March 3, 2009

Jürg Oleas

Hartmut Eberlein

Niels Graugaard

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For people and materials. Pleasant ambient conditions. Thanks to GEA. Complex infrastructures require complex solutions: GEA air treatment and refrigeration systems in public use.

Not too warm, not too cold, and neither too damp nor too dry. Fresh air

In global demand and in local use: GEA refrigeration compressors.

IT industry. Sophisticated ambient conditions preserving valuable works

High-tech control functions: GEA air treatment systems made for comfortable environments.

without unpleasant draughts. Individually adjusted refrigeration for different foodstuffs. Highly purified air for medical applications or the of art in museums. The demands man and materials make of air treatment technology vary widely. GEA air treatment and refrigeration technology solutions ensure that air is cleaned, humidified or de-humidified, heated or cooled, and delivered to

GEA is a strong service partner in the after sales business too. GEA’s Clarifair ensures smoking zones are free of pollutants and smoke. Entirely without building insulation. Background: Front ends of evaporators: the core of many air treatment solutions.

its destination in an energy saving way. And along with further options, through the use of heat recycling, or of water as a cooling medium. Tailored GEA systems are at work in every conceivable area to ensure that people feel comfortable: whether in hotels, office and industrial buildings, department stores and shopping malls, sports centers, public swimming pools, hospitals, museums and many other public facilities. Complete systems deliver the highest degree of comfort and air quality, while tailored to each and every customer’s specific wish. Intelligent control engineering and innovative solutions – such as online monitoring – guarantee operations that are both energy optimized as well as economically efficient. A key strength in food supply is the fact that our extremely varied range of refrigeration systems secure foodstuff refrigeration on a global scale. The same systems are also at work where leisure activities are concerned, however. Indoor ski facilities and ice sports halls would be inconceivable without GEA systems. Equipment made by technology and market leader GEA embodies decades of engineering experience. A sure guarantee, in other words, for maximum efficiency, quality and economic total cost of ownership.

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Corporate Governance Report

Corporate Governance Report Transparent, responsible corporate management and controlling aimed at long-term value enhancement enjoys a high priority at GEA Group Aktiengesellschaft. The management of the Group follows recognized principles of corporate governance, and to a very large degree ensures compliance with the proposals and recommendations of the German Corporate Governance Code in the version of June 6, 2008. The recommendation contained in Section 5.4.6 Paragraph 2 Clause 1 of the Code concerning performance-based remuneration of Supervisory Board members represents the Group’s sole divergence from the Code, an approach that the Group continues to adopt. The company regards an appropriate fi xed remuneration as more appropriate for the Supervisory Board’s controlling function, which is performed independently of the company’s profitability.

Corporate management and controlling: Executive and Supervisory Boards The Executive Board of GEA Group Aktiengesellschaft, comprising three members, is the body responsible for the management of the Group. The Supervisory Board, which consists of 12 members, half of which are shareholders and the remaining half are employee representatives, advises and monitors the Executive Board. The Executive and Supervisory boards work closely together to the benefit of the company. Their common objective is to achieve a sustained increase in the value of the company. The Executive Board reports regularly, promptly and extensively to the Supervisory Board concerning all planning, business progress, risk position, risk management and compliance questions relevant to the company. The company’s articles of association and rules of internal procedure require that important transactions be submitted to the Supervisory Board for its approval. The Supervisory Board’s work is supported by committees. These are the Presiding Committee and the Audit Committee. A Nomination Committee has also been set up, pursuant to the recommendation contained in Section 5.3.3 of the German Corporate Governance Code. The report of the Supervisory Board on pages 199 et seq. of this annual report provides further details of the Supervisory Board’s activities.

Responsible handling of risk’s GEA Group Aktiengesellschaft has experienced extremely strong growth over recent years. Sustainable growth can only be achieved, however, if not only the opportunities but also the risks of entrepreneurial activity are identified, and taken into appropriate account. Effective risk management is consequently one of the core elements of corporate governance at GEA Group Aktiengesellschaft. Further information on risk management can be found on pages 55 et seq. and 109 et seq. of this annual report.

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Transparency of accounting and auditing GEA Group Aktiengesellschaft is committed to providing transparent financial reporting. The consolidated financial statements are published according to the International Financial Reporting Standards (IFRS). The annual fi nancial statements of the parent company, GEA Group Aktiengesellschaft, are prepared according to the German Commercial Code (HGB). The Supervisory Board engages the external auditor elected by the Annual General Meeting and, under the auspices of the Audit Committee, sets the auditor’s schedule and fee. In doing so, it ensures the auditor’s work is not compromised by confl icts of interest. Along with the consolidated financial statements and annual financial statements of the parent company, the Audit Committee also discusses the interim reports with the Executive Board, as recommended in Section 7.1.2 of the German Corporate Governance Code.

Extensive reporting GEA Group Aktiengesellschaft communicates openly, actively, and comprehensively. GEA Group Aktiengesellschaft regularly and promptly informs shareholders, shareholder organizations, analysts, and interested members of the public on equal terms about the company’s position and material changes to the business. The company website is an important medium for this purpose. It contains annual and interim reports, press releases, ad hoc statements, and other disclosures required by the German Securities Trading Act, as well as its financial calendar and other relevant information, published in both German and English. The Group also organizes regular analysts’ meetings, press conferences and events for investors. All presentations made at these events can also be downloaded from the website of GEA Group Aktiengesellschaft under Investor Relations / Presentations.

Directors’ dealings and shareholdings Pursuant to § 15 a of the German Securities Trading Act (WpHG), executive and supervisory board members as well as their related parties are obligated to communicate the purchase and disposal of GEA Group Aktiengesellschaft shares or related financial instruments to both the Federal Financial Supervisory Authority (BaFin) and the company, if such transactions exceed the threshold of EUR 5,000 within a given calendar year. GEA Group Aktiengesellschaft reported various directors’ dealings (the buying of the company’s shares by directors or other persons subject to reporting requirements) in the 2008 fiscal year pursuant to § 15 a of the German Securities Trading Act (WpHG). Sales of GEA Group Aktiengesellschaft shares by directors or other persons subject to reporting requirements did not occur in the 2008 fiscal year. The company also published all such transactions on its website.

GEA Group Annual Report 2008

71

Corporate Governance Report

As of March 10, 2009, the Executive Board holds a total of 77,000 GEA Group Aktiengesellschaft shares (57,050 as of December 31, 2008). The total of 110,136 GEA Group Aktiengesellschaft shares held by all Executive and Supervisory Board members as of March 10 amounts to less than 1 percent of the shares in issue.

Securities-based remuneration program for company executives GEA Group Aktiengesellschaft launched a new long-term, share-price-based remuneration program on July 1, 2006 entitled “GEA Performance Share Plan”, for all executives of the first and second management levels. This program was also extended to the third management level in the 2008 fiscal year. Details of this program can be found on page 47 of the management report, and in section 7.3.4 of the notes to the fi nancial statements.

Code of conduct The Executive and Supervisory Board have established a code of conduct that requires that the group’s business activities comply with high ethical standards and all legislative requirements. It is binding to all members of staff. It is published on the website of GEA Group Aktiengesellschaft under Investor Relations/Corporate Governance. Besides this, there are also various guidelines relating to specific topics. A Chief Compliance Officer has been appointed to monitor the principles laid down in both the code of conduct and the guidelines, and this officer reports regularly to both the Supervisory Board and the Audit Committee. A Compliance Officer has also been appointed for each division, and for each operating company in the “Other” segment. The compliance officers hold regular meetings to discuss GEA Group’s Compliance Program, and develop it further. Training sessions for the relevant group employees in the regulations contained in the code of conduct and in the supplementary GEA compliance guidelines supplement GEA’s Compliance Program.

72

GEA Group Annual Report 2008

Corporate Governance Report

Declaration of conformity The Executive and Supervisory Board of GEA Group Aktiengesellschaft issued the following declaration of compliance on November 25, 2008, which has been made permanently available to shareholders on the company’s website at www.geagroup.com:

GEA Group Aktiengesellschaft complies with the recommendations of the German Corporate Governance Code in the version of June 6, 2008, with the following listed exception: – Supervisory Board remuneration contains no performance-based remuneration components (Code Section 5.4.6 Paragraph 2 Clause 1). GEA Group Aktiengesellschaft has complied with the recommendations of the German Corporate Governance Code since the declaration of conformity of November 27, 2007 in its relevant valid version with the following listed exception: – Supervisory Board remuneration contained no performance-based remuneration components (Code Section 5.4.7 Paragraph 2 Clause 1; old version).

Bochum, November 25, 2008 For the Supervisory Board

For the Executive Board

Dr. Jürgen Heraeus

Jürg Oleas

Hartmut Eberlein

GEA Group Annual Report 2008

73

Management Report / Corporate Governance Report Remuneration Report

Remuneration Report (Part of the Corporate Governance Report and Management Report) Executive Board remuneration The remuneration paid to the members of the Executive Board is composed of both performance-related and non-performance-related components. The non-performance-related basic remuneration is a fixed amount paid as a monthly salary. Executive Board members also receive pension subsidies, and non-monetary compensation, consisting mainly of the fiscal value of company car use, reimbursement of the costs of running two households, and accident insurance contributions. As a rule, pension subsidies are granted up to a maximum of half of the substantiated maximum amount of statutory pension insurance. In the case of Mr Niels Graugaard, this amount is equivalent to 12.5 percent of his fi xed salary, in line with his contractual arrangements. Mr Graugaard has not received a pension commitment from the company. The performance-related remuneration (bonus) is generally determined by the achievement of profit-related and personal targets specified in individual agreements. The performance targets basically depend on earnings before tax in combination with the EBIT margin (EBIT = earnings before interest and tax), and on the performance of the company’s share relative to the MDAX share index. Executive Board members may be granted an additional discretionary bonus if their individual performance adds exceptional value for the company’s shareholders. The company’s Supervisory Board decides whether such a discretionary bonus should be granted and, if so, its level. No additional discretionary bonuses were awarded for the 2008 fiscal year. The Chairman of the Executive Board, Mr Jürg Oleas, enjoys a contractual pension commitment with an individually agreed fi xed amount. This pension is paid if his Executive Board contract ends on or after his 62nd birthday, or if he becomes unable to work. Mr Oleas receives his pension if his employment contract has run for at least 15 years and ends before the above preconditions are met. In this case, or if he becomes permanently unable to work, his pension is paid as a transitional measure until he reaches his 62nd birthday; this amount is reduced by the full amount of any severance payment and – up to his 62nd birthday – any other income from activities commenced after he left the company, but by no more than half of the transitional pension payment for the year in question.

74

GEA Group Annual Report 2008

Management Report / Corporate Governance Report Remuneration Report

If Mr Oleas’ contract as an Executive Board member ends before one of the above-mentioned preconditions is met, he is entitled to a pro-rata annual pension that is calculated based on a maximum possible service period of 180 months. A pension that is being paid is adjusted every year in line with the consumer price index. All members of the Executive Board are entitled to make their own contributions to a pension scheme in the form of deferred compensation. There is no employer subsidy. The company has set aside pension reserves to cover the future entitlements of Executive Board members. The amounts allocated to these pension reserves in accordance with IFRS for current members of the Executive Board who are active at the end of the reporting year are listed individually in the table below. The relevant amounts consist of the service cost and the interest cost. The Chairman of the Executive Board is entitled to give unilateral notice in the instance that the Supervisory Board wishes to revoke his appointment as Chairman of the Executive Board. If he chooses to exercise this option to give unilateral notice and to step down from the Executive Board, he is entitled to continue to receive his fi xed salary for the remaining months of his contractual period of office, to a maximum of eight months, however. With respect to a change of control, the following rule applies for all members of the Executive Board: if Executive Board members are removed as Executive Board members of the company, or their contracts as Executive Board members are terminated by mutual consent within six months of the change of control: the bonuses paid for the respective fiscal year – where legally permissible, especially pursuant to § 87 Paragraph 1 of the German Stock Corporation Act (AktG) – will amount to at least K EUR 850 gross for Mr Oleas, at least K EUR 510 gross for Mr Eberlein, and to at least K EUR 467.5 gross for Mr Graugaard. A change of control within this meaning is deemed to have occurred as soon as the company is notified that an investor holds 50 percent or 75 percent or more of the company’s voting capital as per § 21 of the German Securities Trading Act (WpHG), or an affi liation agreement is concluded with the company as a controlled enterprise as per §§ 291 et seq. of the German Stock Corporation Act (AktG), or either a subordination of a dependent entity as per § 319 of the German Stock Corporation Act (AktG), or a change in the company’s legal form as per the Conversion Act, becomes legally effective. The total remuneration paid to the current Executive Board members of GEA Group Aktiengesellschaft amounted to K EUR 5,635 in the reporting year (previous year: K EUR 7,535) and, in addition to a fi xed payment of K EUR 2,460 (previous year: K EUR 2,828), contained a variable bonus of K EUR 3,175 (previous year: K EUR 4,707).

GEA Group Annual Report 2008

75

Management Report / Corporate Governance Report Remuneration Report

The tables below provide details of the base salary, bonus, other forms of remuneration, and the pension entitlements for each member of the Executive Board. The table below shows the remuneration paid to each member of the Executive Board in 2008, and the previous year’s comparison:

(EUR) Jürg Oleas prior year Hartmut Eberlein prior year Niels Graugaard

1

prior year

Fixed salary

Bonus

Paymentin-kind

Pension subsidies

Total

1,071,000.00

1,500,000.00

59,461.44

-

2,630,461.44

1,020,000.00

1,500,000.00

94,223.11

-

2,614,223.11

600,000.00

900,000.00

15,461.11

6,328.20

1,521,789.31

500,000.04

800,000.00

14,806.56

6,268.56

1,321,075.16

550,000.08

775,000.00

88,572.40

68,750.04

1,482,322.52

229,166.70

322,916.67

38,329.15

28,645.85

619,058.37

2

-

-

-

-

-

prior year

376,559.16

1,334,041.10

34,970.76

3,471.30

1,749,042.32

Klaus Moll

Peter Schenk 2 prior year Total prior year

-

-

-

-

-

450,000.00

750,000.00

26,639.37

4,701.42

1,231,340.79

2,221,000.08

3,175,000.00

163,494.95

75,078.24

5,634,573.27

2,575,725.90

4,706,957.77

208,968.95

43,087.13

7,534,739.75

1) Mr Graugaard‘s prior-year remuneration relates to the August 1 to December 31, 2007 period. 2) Mr Moll and Mr Schenk stepped down from the Executive Board in the 2007 fiscal year.

Executive Board‘s individual loan stock rights and pension entitlements in 2008

(EUR) Jürg Oleas Hartmut Eberlein

1

Niels Graugaard 2 Total

Pension entitlement p.a. (Status: 12/31/2008) (Annual entitlement at the start of pension)

Pension entitlements earned as of 12/31/2008 p.a.

Addition to pension provisions (IFRS) in FY 2008

220,000.00

112,444.44

167,358.00

36,577.82

36,577.82

32,189.00

-

-

-

256,577.82

149,022.26

199,547.00

1) Mr Eberlein‘s pension entitlement is based solely on the contributions he pays into a pension scheme in the form of deferred compensation. 2) No pension commitment was granted to Mr Graugaard.

76

GEA Group Annual Report 2008

Management Report / Corporate Governance Report Remuneration Report

Remuneration paid to former members of the Executive Board and their surviving dependants Former members of the Executive Board and their surviving dependants received remuneration of K EUR 1,666 (prior year: K EUR 2,126) from GEA Group Aktiengesellschaft, and payments of K EUR 5,238 (prior year: K EUR 5,717) from the GEA Group. GEA Group Aktiengesellschaft accrued IFRS pension reserves of K EUR 27,548 (prior year: K EUR 27,136) for former members of the Executive Board and their surviving dependants; the GEA Group accrued pension reserves of K EUR 56,616 (prior year: K EUR 57,384) for these persons.

Remuneration paid to the Supervisory Board Expenses incurred for the Supervisory Board amounted to K EUR 738 in 2008 (prior year: K EUR 670). According to § 15 Paragraph 1 of the articles of association, each member of the Supervisory Board receives a fi xed annual payment of EUR 30,000, payable after the end of each year, in addition to reimbursement of out-of-pocket expenses. The Chairman of the Supervisory Board receives two and a half times this amount, and the Deputy Chairman one and a half times this amount. According to § 15 Paragraph 2 of the articles of association, each member of the Presiding Committee and the Audit Committee receives K EUR 25. The chairman of each of these committees receives twice this amount. No separate remuneration is, or was, paid to members of either the Mediation Committee or the Nomination Committee. Members who join or leave the Supervisory Board or its committees during the year are paid only pro rata temporis for the period of their membership. The remuneration paid to members of the Supervisory Board contains no performance-related element. Pursuant to § 15 Paragraph 3 of the articles of association, Supervisory Board members also receive remuneration per meeting of EUR 750 after the end of the fiscal year for each Supervisory Board meeting and for each meeting of the abovementioned committees in which they have participated.

GEA Group Annual Report 2008

77

Management Report / Corporate Governance Report Remuneration Report

The individual details of remuneration, including its relevant components, for members of the Supervisory Board, the Presiding Committee, and the Audit Committee are listed below in the following table, including both 2008 and previous year’s figures: Supervisory Board remuneration

Presiding Committee remuneration

Audit Committee remuneration

Remuneration for meetings

Totals 2008

Dr. Heraeus

75,000.00

50,000.00

25,000.00

10,500.00

160,500.00

prior year

75,000.00

50,000.00

25,000.00

-

150,000.00

45,000.00

25,000.00

-

6,750.00

76,750.00

(EUR)

Siegers prior year Ammer prior year Bastaki prior year Gröbel prior year Hunger prior year Kämpfert prior year Dr. Kuhnt prior year Löw prior year Dr. Perlet prior year Stöber

45,000.00

25,000.00

-

-

70,000.00

30,000.00

-

-

2,250.00

32,250.00

30,000.00

-

-

-

30,000.00

30,000.00

-

-

3,750.00

33,750.00

30,000.00

-

-

-

30,000.00

30,000.00

25,000.00

-

8,250.00

63,250.00

30,000.00

25,000.00

-

-

55,000.00

30,000.00

-

-

3,750.00

33,750.00

30,000.00

-

-

-

30,000.00

30,000.00

-

-

3,750.00

33,750.00

30,000.00

-

-

-

30,000.00

30,000.00

-

50,000.00

6,750.00

86,750.00

30,000.00

-

50,000.00

-

80,000.00

30,000.00

-

25,000.00

6,750.00

61,750.00

30,000.00

-

25,000.00

-

55,000.00

30,000.00

25,000.00

-

5,250.00

60,250.00

30,000.00

25,000.00

-

-

55,000.00

30,000.00

-

25,000.00

6,000.00

61,000.00

prior year

30,000.00

-

25,000.00

-

55,000.00

Graf von Zech

30,000.00

-

-

3,750.00

33,750.00

prior year Total prior year

30,000.00

-

-

-

30,000.00

420,000.00

125,000.00

125,000.00

67,500.00

737,500,00

420,000.00

125,000.00

125,000.00

-

670,000.00

Board members of GEA Group Aktiengesellschaft were granted no advances, loans, or guarantees. No remuneration or benefits were paid to members of the Supervisory Board for personal services rendered, such as consultancy, mediation or agency services. Employee representatives from the GEA Group Aktiengesellschaft received their normal salaries for their activities.

78

GEA Group Annual Report 2008

GEA Group Annual Report 2008

79

Components: always a part of the whole. With its dough, and particularly its massive requirements for cheese, pizza production around the world is one of the main consumers of milk produced globally. Plate heat exchangers heat or cool products to the temperatures required in production processes. The milk processing industry is inconceivable without separators. Valves reliably and safely manage production and cleaning processes.

Dairies, breweries, high-sea trawlers, pharmaceuticals production – all entirely different areas. But, nevertheless, the same in one respect: They all represent highly complex systems that function only if all of the individual components are working reliably. GEA supplies the core components for many industrial processes, integrates them and tailors them to individual customer requirements. Take a dairy, for example. Milk is a valuable product that nevertheless deteriorates very rapidly. An absolute prerequisite for first-class endproducts for the well-being of customers: the most stringent benchmarks in food safety, reliability and efficiency. As a leading process technology company, GEA meets these demands to an extremely high degree.

Microorganisms are killed during pasteurization, thereby ensuring the shelf-life of dairy products.

Separators disinfect the raw milk, and separate its components into the

Background: Different separator plates rotate in separators – with extremely high rotation speeds. Centrifugal forces separate materials.

very high acuity of separation. It also reduces a dairy’s consumption of

desired intermediary products. GEA’s protein-plus process enables a significantly enhanced protein yield while at the same time allowing a fresh water. A patented valve for the mix-proof separation of two media or products ensures a maximum degree of hygiene, and is consequently the only double-seat valve approved by the US dairy authorities. GEA heat exchangers offer the greatest possible flexibility with regard to processing volumes and temperatures. Extensive plant technology from GEA is used for skimming, cooling, pasteurizing and homogenizing among other applications. Perfect servicing guarantees smooth, interruption free production. And the more compact the individual aggregates are, the lower the level of infrastructure investment customers will be required to make. Always safe, reliable and efficient – the key core components are our core expertise.

GEA Group Annual Report 2008

81

82

GEA Group Annual Report 2008

Financial Statements

Financial Statements

84

Consolidated Balance Sheet

86

Consolidated Income Statement

87

Consolidated Cash Flow Statement

88

Consolidated Statements of Changes in Equity

90

Notes to the Consolidated Financial Statements

90

1. Reporting principles

93

2. Accounting principles

109

3. Financial risk management

118

4. Disposals and Discontinued Operations

122

5. Acquisitions

128

6. Notes to the Consolidated Balance Sheet: Assets

144

7. Notes to the Consolidated Balance Sheet: Equity and Liabilities

171

8. Notes to the Consolidated Income Statement

182

9. Contingent Liabilities, Other Financial Obligations, Contingent Assets, and Litigation

186

10. Segment Reporting

189

11. Events following the balance sheet date

189

12. Other notes

197

Assurance of the legal representatives

GEA Group Annual Report 2008

83

Financial Statements

Consolidated Balance Sheet At December 31, 2008 The accompanying notes are an integral part of these consolidated financial statements.

Assets Section

12/31/2008

12/31/2007

Property, plant and equipment

(K EUR)

6.1

547,722

486,037

Investment property

6.2

14,433

44,666

Goodwill

6.3

1,331,833

1,299,650

Other intangible assets

6.3

144,349

95,869

Investments in enterprises reported at equity

6.4

11,983

14,585

Other non-current financial assets

6.5

60,011

43,237

Deferred taxes

8.7

314,356

364,910

Non-current assets

2,424,687

2,348,954

Inventories

6.6

717,798

674,691

Trade receivables

6.7

1,350,248

1,241,541

Income tax receivables

6.8

10,672

11,186

Other current financial assets

6.5

166,005

175,706

Cash and cash equivalents

6.9

439,554

279,162

2,684,277

2,382,286

19,361

16,713

5,128,325

4,747,953

Current assets Assets held for sale Total assets

84

GEA Group Annual Report 2008

6.10

Financial Statements

The accompanying notes are an integral part of these consolidated financial statements.

Equity and liabilities (K EUR)

Section

Issued capital Additional paid-in capital

12/31/2008

12/31/2007

496,890

496,890

1,079,610

1,079,610

Retained earnings

-69,689

-130,398

Accumulated other comprehensive income

-54,725

-35,932

3,319

3,508

Minority interest Equity

7.1

1,455,405

1,413,678

Non-current provisions

7.2

181,115

231,568

Non-current obligations to employees

7.3

505,961

513,370

Non-current financial liabilities

7.4

255,078

20,874

Other non-current liabilities

7.7

6,771

4,284

Deferred taxes

8.7

88,395

87,219

Non-current liabilities

1,037,320

857,315

Current provisions

7.2

645,733

606,770

Current obligations to employees

7.3

199,035

168,006

Current financial liabilities

7.4

305,410

218,898

Trade payables

7.5

723,650

767,505

Income tax liabilities

7.6

55,680

54,653

Other current liabilities

7.7

Current liabilities Liabilities related to assets held for sale Total equity and liabilities

6.10

701,104

661,128

2,630,612

2,476,960

4,988

-

5,128,325

4,747,953

GEA Group Annual Report 2008

85

Financial Statements

Consolidated Income Statement From January 1 to December 31, 2008 The accompanying notes are an integral part of these consolidated financial statements.

(K EUR) Revenue

1/1/2008 -

1/1/2007 -

Section

12/31/2008

12/31/2007

8.1

5,178,968

4,855,970

-3,722,398

-3,556,590

1,456,570

1,299,380

-481,427

-439,608

Cost of revenue Gross profit Selling expenses Administrative expenses

-478,897

-444,036

Other income

8.2

155,321

96,739

Other expenses

8.3

-152,214

-113,060

2,199

1,206

Net income/loss on enterprises reported at equity Other financial income

8.5

3,626

2,573

Other financial expenses

8.6

-968

-2,081

504,210

401,113

34,044

21,509

Earnings before interest and tax (EBIT) Interest and similar income

8.5

Interest expense and similar charges

8.6

Earnings before tax on continuing operations Income taxes

8.7

of which current taxes of which deferred taxes Net income on continued operations Net income/loss on discontinued operations Net income/loss of which minority interest thereof attributable to shareholders of GEA Group Aktiengesellschaft

4.

-79,449

-71,031

458,805

351,591

-109,830

-114,421

-75,233

-64,418

-34,597

-50,003

348,975

237,170

-247,998

46,343

100,977

283,513

1,347

1,113

99,630

282,400

1.89

1.26

-1.35

0.25

(EUR) Earnings per share on continued operations Earnings per share on discontinued operations Earnings per share Weighted average number of shares outstanding (million)

86

GEA Group Annual Report 2008

0.54

1.51

183.9

187.3

Financial Statements

Consolidated Cash Flow Statement From January 1 to December 31, 2008 The accompanying notes are an integral part of these consolidated financial statements. 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Net income/loss

100,977

283,513

Plus income taxes

109,830

114,421

Plus net income/loss on discontinued operations

247,998

-46,343

Earnings before tax on continuing operations

458,805

351,591

(K EUR)

Net interest expense

45,405

49,522

504,210

401,113

Depreciation, amortization, impairment and reversal of impairment on non-current assets

81,707

79,554

Other non-cash income and expenses

-4,105

6,851

Earnings before interest and tax (EBIT)

Obligations to employees

-37,381

-36,576

Change in provisions

17,552

21,612

Gains/losses on disposal of non-current assets

-1,843

-3,957

3,616

-71,616

Change in trade receivables

-89,932

-75,544

Change in trade payables

-44,066

16,383

Change in inventories, including unbilled PoC receivables 1

Change in other operating assets and liabilities Tax payments Net cash flow from operating activities of discontinued operations Cash flow from operating activities Proceeds from disposal of non-current assets Cash payments for the purchase of property, plant and equipment and intangible assets Cash payments for the purchase of non-current financial assets Interest and dividend income Cash payments for acquisitions

12,150

-33,131

-68,323

-31,526

15,361

-92,058

388,946

181,105

42,935

23,362

-165,610

-129,282

-15,058

-10,047

13,770

9,735

-84,882

-78,123

-215,007

571,513

Repayments of non-trade receivables relating to discontinued operations

-

-484,925

Net cash flow from investing activity relating to discontinued operations

-3,311

-11,068

Cash flow from disposal of discontinued operations

Cash flow from investing activities

-427,163

-108,835

Dividend paid by GEA Group AG for previous year

-36,797

-

Cash payments for the purchase of treasury shares

-2,124

-95,853

Change in finance lease liabilities

-1,245

-3,244

Cash receipts from raising of finance facilities Cash paymets for borrower´s note loan Cash payments for redemption of finance facilities Interest payments Net cash flow from financing activities of discontinued operations Cash flow from financing activities Exchange-rate-related and other changes in cash and cash equivalents Change in unrestricted cash and cash equivalents

75,835

129,320

199,500

-

-9,071

-31,580

-18,435

-35,211

-1,913

-13,439

205,750

-50,007

-9,144

-1,786

158,389

20,477

Unrestricted cash and cash equivalents at beginning of the year

272,717

252,240

Unrestricted cash and cash equivalents at end of the year

431,106

272,717

Restricted cash and cash equivalents Cash and cash equivalents reported on the face of the balance sheet

8,448

6,445

439,554

279,162

1) Including prepayments received

GEA Group Annual Report 2008

87

Financial Statements

Consolidated Statements of Changes in Equity At December 31, 2008 The accompanying notes are an integral part of these consolidated financial statements.

(K EUR) Balance at 12/31/2006

Number of shares

Issued capital

Additional paid-in capital

Retained earnings

187,945,616

496,890

1,077,076

-249,149

Net income/loss

283,513

Minority interest

-1,113

Accumulated other comprehensive income/loss Total income and expense for the year of which minority interest of which attributable to GEA Group shareholders Withdrawal of treasury shares Sale of treasury shares

-4,152,771

-163,650

190,000

2,534

Change in other minority interest Balance at 12/31/2007

183,982,845

496,890

1,079,610

Net income

-130,398 100,977 -1,347

Minority interest Accumulated other comprehensive income/loss Total income and expence for the year of which minority interest of which attributable to GEA Group shareholders Withdrawal of treasury shares

-175,000

-2,124

Dividend

-36,797

Change in other minority interest Balance at 12/31/2008

88

GEA Group Annual Report 2008

183,807,845

496,890

1,079,610

-69,689

Financial Statements

Accumulated other comprehensive income/loss Accumulated other

Cumulative translation adjustment

Available-for-sale securities

Hedge accounting

comprehensive income/loss

Treasury shares

Minority interest

Total

-5,657

205

5,779

327

-65,263

1,582

1,261,463 283,513

-36,139

-178

58

-36,259

1,113

-

-30

-36,289 247,224 1,083 246,141

63,331

-100,319

1,932

-41,796

27

5,837

-35,932

-

4,466 843

843

3,508

1,413,678 100,977

-920

-52

-17,821

-18,793

1,347

-

77

-18,716 82,261 1,424 80,837 -2,124 -36,797

-42,716

-25

-11,984

-54,725

-

-1,613

-1,613

3,319

1,455,405

GEA Group Annual Report 2008

89

Notes to the Consolidated Financial Statements Reporting principles

Notes to the Consolidated Financial Statements 1. Reporting principles Basis of presentation These consolidated fi nancial statements of GEA Group Aktiengesellschaft have been prepared pursuant to § 315a of the German Commercial Code (“consolidated fi nancial statements according to International Accounting Standards”) in accordance with the International Financial Reporting Standards (IFRS) and the relevant interpretations of the International Accounting Standards Board (IASB), and in accordance with Regulation No. 1606/2002 of the European Parliament and Council regarding the adoption of International Accounting Standards in the EU. The supplementary regulations of § 315a of the German Commercial Code (HGB) were also considered. GEA Group applied the following accounting standards and interpretations for the fi rst time in 2008: IFRS 8 Operating Segments, IFRIC 11 Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements, IFRIC 13 Customer Loyalty Programs, IFRIC 14 The Limit on a Defined Benefit Asset IFRIC 16 Hedges of a Net Investment in a Foreign Operation GEA Group is applying of IFRS 8 voluntary for the fi rst time in accordance with the regulations concerning first-time application. IFRS 8 stipulates the fi nancial information that a company is required to report concerning its operating segments. IFRS 8 replaces IAS 14 “Segment Reporting”, and follows the so-called management approach in terms of segmental demarcation and reporting. Consequently, segmental information is now disclosed on the basis of internal reporting. On this basis, the group is split into free business segments. In accordance with IAS 14 the business activities were split into four segments. With respect to the other standards requiring first-time application, there are no significant circumstances to which they might apply. Although the following accounting standards and interpretations, as well as amendments to existing standards, had already been published, they were not yet mandatory for the preparation of IFRS consolidated fi nancial statements as of December 31, 2008: IAS 1 “Presentation of Financial Statements” Amendment relating to the requirement to list comprehensive income The amended presentation is intended to make it easier to analyze and compare fi nancial statements.

90

GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Reporting principles

IAS 23 “Borrowing costs” Amendment relating to the option of immediate recognition through profit and loss The amended standard requires that borrowing costs that can be directly allocated to the purchase, construction or production of a qualified asset must be capitalized. The current option to immediately expense borrowing costs is being abolished. IAS 32 “Financial Instruments: Disclosure and Presentation” Amendment relating to disclosures of callable financial instruments and obligations arising on liquidation The amendments mainly concern the classification of particular types of financial instruments as equity or debt. Additional disclosures in the notes to the financial statements are also required for fi nancial instruments affected by the regulation. IAS 39 “Financial Instruments: Recognition and Measurement” Amendment relating to risk exposures that qualify for hedge accounting The amendment clarifies hedge accounting in two special situations: the designation of inflation risks as a hedged item and the designation of a one-sided risk in a hedged item. IFRS 2 “Share-based Payment” Amendment relating to vesting conditions and cancellations This amendment clarifies that only service conditions and performance conditions represent vesting conditions. It also specifies that accounting rules relating to early plan cancellation apply irrespective of whether the company itself or a another party cancelled the plan. IFRS 3 “Business Combinations” Amendment relating to the application of the purchase method The revised standard firstly replaces various rules that have applied to date, and, secondly, fills gaps within existing regulations. The most important change relates to the presentation of business combinations where less than 100 percent of a company’s shares are acquired. This amendment introduces the option of fully recognizing goodwill arising from the purchase using the “full goodwill method”, in other words, including the portion attributable to minorities. In addition, step acquisitions, following the attainment of control, or partial disposals of shares without loss of control, are to be recognized through equity as a transaction between shareholders. Besides this, the full extent of the purchase transaction costs should be expensed. The requirements of IAS 27 “Consolidated Financial Statements”, IAS 28 “Investments in Associates” and IAS 31 “Interests in Joint Ventures” were adapted correspondingly.

GEA Group Annual Report 2008

91

Notes to the Consolidated Financial Statements Reporting principles

Improvements to IFRSs Amendments arising from the IASB’s annual improvement process This collection of amendments contained a total of 35 amendments to various current International Financial Reporting Standards (IFRS). The amendments are split into two parts. The first part contains amendments relating to accounting, in other words, questions concerning presentation, recognition, and measurement. The second part contains amendments to terminology, or editorial modifications that have minimal impact on accounting. IFRIC 15 “Agreements for the Construction of Real Estate” This interpretation specifies how real estate developers recognize income from the sale of real estate. IFRIC 17 “Distributions of Non-Cash Assets to Owners” This standard regulates how companies should measure distributions of non-cash assets to owners. With the exception of the amendment to IFRS 3, and the amendments of IAS 39 and IFRIC 17, all amended and revised standards, as well as new interpretations are to be applied for financial years starting on or after January 1, 2009. The other newly instituted regulations must be applied to fiscal years beginning on or after July 1, 2009. Earlier application is permitted. GEA Group currently assumes that the application of the revised and amended versions, to the extent that the EU confirms them in this form, will not have a significant impact on the consolidated financial statements. The consolidated financial statements have been prepared in euros. All amounts, including the figures for the previous year, are stated in thousands of euros (K EUR). All amounts have been rounded. Differences between the sum of individual values and the total value could consequently be in the order of EUR 1,000. For the purposes of clarity, various items in the consolidated balance sheet and income statement have been summarized as one item, and explained accordingly in the notes. Assets and liabilities are classified as either “current” or “non-current”. The income statement has been prepared using the cost-of-sales format. The cash flow statement is prepared according to the indirect method with respect to cash flow from operating activities and according to the direct method with respect to cash flow from investing and financing activities. The Executive Board of GEA Group Aktiengesellschaft approved these consolidated financial statements for publication on March 3, 2009.

92

GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

2. Accounting principles Scope of consolidation All material companies in which GEA Group Aktiengesellschaft holds a majority of voting rights, either directly or indirectly excert a controlling influence over financial and business policy, are consolidated. Subsidiaries are fully consolidated from the time at which the possibility of a controlling influence has transferred to the GEA Group. They are deconsolidated from the time at which the controlling influence ends. Acquired subsidiaries are entered in the accounts using the purchase method. The cost of the acquisition is measured using the transferred cash and cash equivalents, the fair value of transferred assets, equity instruments issued and liabilities assumed at the time of the transaction, plus the costs directly attributable to the acquisition. Assets, liabilities, and contingent liabilities identifiable as part of a business combination are measured at fair value at the time of the transaction for the purposes of first-time consolidation, irrespective of any minority interest. The cost of purchase in excess of the acquired subsidiary’s net assets measured at fair value is recognized as goodwill. If the cost of the purchase is lower than the acquired subsidiary’s net assets measured at fair value, even after re-measurement, the difference is reported through the income statement. Intercompany receivables, liabilities, and gains and losses on transactions between Group enterprises are eliminated with the exception of income and expenses arising between continuing and discontinued operations. Consolidated subsidiaries with balance sheet dates that differ from that of the parent company have been consolidated on the basis of interim financial statements as of December 31. In addition to GEA Group Aktiengesellschaft, 64 German (previous year: 67) and 264 foreign subsidiaries (previous year: 254) have been consolidated as of December 31, 2008. During the course of 2008, 25 subsidiaries were consolidated for the first time and 8 were deconsolidated. Mergers reduced the number of consolidated companies by a further 10. Overall, the number of consolidated companies therefore increased year on year by 7 to 328.

GEA Group Annual Report 2008

93

Notes to the Consolidated Financial Statements Accounting principles

A total of 110 subsidiaries are not consolidated (previous year: 108) because their influence is not material when considering the Group’s overall assets, fi nances, and earnings.

Investments in Associates Investments in enterprises over which a significant influence can be exerted are measured using the equity method of accounting. The investment is initially recorded at cost. Associates are companies over which a Group company can exert a significant influence through its involvement in the associate’s decision-making processes with respect to fi nancial or business policy. This affects companies in which the GEA Group holds between over 20 percent and up to 50 percent of the voting rights, either directly or indirectly. Associates’ gains or losses attributable to the Group are recognized in the income statement. The Group’s share of expenses and income reported directly in equity is reported directly in the consolidated equity. If the Group’s share of an associate’s losses exceeds the carrying amount of its net investment in the associate, no further losses are recognized. Any goodwill arising on acquisition is recognized in the carrying amount of the investment. Where required, associates’ accounting policies are modified to ensure consistent accounting policies throughout the Group. A total of three investments in associates (previous year: 13) have been consolidated at equity at the balance sheet date.

Joint Ventures The option was taken to measure investments in joint ventures using the equity method. A total of 13 investments in joint ventures (previous year: 6) have been recognized as of the balance sheet date. A list of some key subsidiaries can be found in the Notes at 12.4.4. A full list of shareholdings is published in the electronic Federal Gazette pursuant to § 325 of the German Commercial Code (HGB).

Currency translation The Group companies prepare their annual financial statements based on their respective functional currencies.

94

GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

Foreign-currency transactions conducted by consolidated enterprises are translated into the functional currency at the exchange rate prevailing at the time of the transaction. Monetary assets are adjusted to the exchange rate prevailing at each balance sheet date. The translation gains and losses on these items are generally reported as other income or other expenses. All financial statements of companies whose functional currency differs from the reporting currency are translated into the reporting currency of the GEA Group’s consolidated financial statements. Assets and liabilities of the consolidated enterprises are translated at the middle rates prevailing at the balance sheet date. These companies’ income statements are translated at moving-average rates for the year. If the average rate does not represent a reasonable approximation of actual transaction rates, the amounts are translated at the relevant transaction rates. Any exchange differences are allocated to a separate item in equity and amortized. These differences totaled K EUR -42,716 as of December 31, 2008 (previous year: K EUR -41,796). Goodwill arising on the acquisition of foreign subsidiaries is translated, as these companies’ assets, at the rate prevailing on the balance sheet date.

Property, plant and equipment Property, plant and equipment is recognized at cost less cumulative depreciation and impairment, plus reversals of impairment losses. The cost of regular large-scale maintenance is depreciated over either the relevant asset‘s residual useful life or until the next maintenance date. Assets arising from fi nance leases are also reported under property, plant and equipment. A lease is deemed to be any agreement that confers the right to use a certain tangible asset for an agreed period in exchange for payment. Leases under which the lessee bears all material opportunities and risks arising from the use of the leased asset, and where the lessee is consequently deemed to be the beneficial owner, are recognized as finance leases. The leased asset is recognized in the lessee’s balance sheet at the lower of its fair value and the present value of the minimum lease payments. The corresponding lease liability is reported as a finance lease obligation. The leased asset is depreciated in subsequent periods over the shorter of the term of the lease and its useful life. Payments to the lessor are divided into principal and interest, with the amounts representing interest recognized in income over the term of the lease as a continuous interest payment on the residual lease liability. Leases under which the lessor bears all opportunities and risks in connection with the leased asset are classified as operating leases. The lease installments represent a cost for the lessee for the respective period.

GEA Group Annual Report 2008

95

Notes to the Consolidated Financial Statements Accounting principles

Many of the companies included in these financial statements have sold and leased back property, plant and equipment. The sale-and-leaseback transactions resulted in either finance or operating leases depending on the distribution of risk. The entire gain is recognized immediately if the asset has been sold at its fair value. If the sale price is above fair value, the gain is deferred and recognized over the term of the lease. A tangible asset’s carrying amount is reviewed if it is likely to have been impaired as a result of events or changing circumstances. An impairment test is conducted by comparing the asset’s carrying amount with its recoverable amount. If its carrying amount exceeds its recoverable amount, an impairment loss is recognized. To assess impairment, assets are grouped at the lowest level for which separate cash flows can be identified. If the reason for the impairment subsequently ceases to apply, the impairment loss is reversed up to an amount not exceeding the amortized historical cost.

96

GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

Investment property Real estate that is held to earn rental income or generate capital growth is classified as investment property. Where real estate is held partly to generate rental income and partly to produce and supply goods, or to provide services, or for administrative purposes, the entire property is classified as investment property if it is not intended to be for the investor’s own use to any material extent. This is deemed to be the case if the investor uses it to an extent less than 10 percent. The cost is depreciated on a straight-line basis over a period of between 10 and 50 years. The measurement method used is the same as that for property, plant and equipment.

Goodwill Goodwill arising on business combinations is recognized as an intangible asset. The recoverability of goodwill is reviewed at divisional level at least every financial yearend, or when there is an indication that impairment has occurred. The recoverable amount for the division is compared with the carrying amount including goodwill. The recoverable amount corresponds to the higher of internal value in use and fair value less disposal costs. Where business units classified as discontinued operations are concerned, the measure of recoverability is fair value less disposal costs. If the carrying amount of the division’s assets exceeds its recoverable amount, an impairment loss equivalent to the difference is recognized in income. An impairment loss reduces the carrying value of goodwill. Any amount exceeding the total value of goodwill is apportioned to the carrying amounts for non-current nonfinancial assets. The value in use for individual business units is calculated in the fourth quarter of each fiscal year using the discounted cash flow method. Estimating a disposal price is required only if the value in use is less than the carrying amount.

GEA Group Annual Report 2008

97

Notes to the Consolidated Financial Statements Accounting principles

Other intangible assets Other intangible assets include both internally generated and purchased assets. Internally generated intangible assets include capitalized development costs. Besides contractually based rights, acquired intangible assets comprise mainly technologies, brand names, and customer relationships. Technologies, brand names, and customer relationships are regularly acquired in connection with corporate takeovers. Both internally generated and purchased intangible assets are capitalized at cost. If the useful life of an intangible asset can be determined, the asset is amortized on a straight-line basis over its useful life. Intangible assets whose useful life cannot be determined are recognized at cost. An intangible asset’s carrying amount is reviewed if it is likely to have been impaired as a result of events or changing circumstances. Intangible assets whose useful life cannot be determined are tested for impairment annually. The impairment test is the same as that used for property, plant and equipment. Impairments already recognized must be reversed if the reasons for the impairment cease to apply. The impairment is then reversed up to an amount not exceeding the amortized historical cost.

Other financial assets Other fi nancial assets include investments in non-consolidated subsidiaries and other equity investments, other securities, fi nancial receivables (except trade receivables), and derivative financial instruments. Shares held in non-consolidated subsidiaries and other equity investments are allocated to the “financial investments available for sale” category. They are measured at cost because the shares in these corporations are not traded in an active market and their estimated fair value is subject to fluctuations without the probabilities of the fair values being able to be reliably determined within a certain range. Only disposal negotiations can allow their fair value to be determined reliably. We have no intention to sell these instruments. Securitized debt instruments that are intended to be held until maturity are allocated to the “financial instruments held to maturity” category and correspondingly measured using the effective interest rate method applying amortized historical costs. All other securities are measured at fair value and any fluctuations in value are reported through equity with no impact on the income statement. These instruments are only allocated to the “fi nancial instruments held for sale” measurement category if no other category applies.

98

GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

Financial receivables are allocated to the “loans and receivables” measurement category, and measured at amortized cost using the effective interest rate method. Derivative fi nancial instruments are used purely for hedging purposes, particularly in order to hedge against risks arising from currency and price movements, and to mitigate the risk of interest rate fluctuations resulting from financing transactions. They are always recognized at fair value. If derivative fi nancial instruments are not connected with a documented balance sheet hedging relationship, they are allocated to the “fi nancial assets at fair value through profit and loss” measurement category, and their fluctuations in fair value booked through the income statement. If the derivative financial instruments are used to hedge future cash flows, the fluctuations in fair value are booked to equity. The settlement date is relevant for both initial recognition and subsequent derecognition of primary financial assets. The assets are recognized as soon as the fi nancial instrument is delivered to the GEA Group. They are derecognized as soon as the right to receive cash payments or other financial assets expires as a result of payment, waiver of right to performance of contract, statutory limitation, offset, or any other factor, or the right is transferred to another person, with the related risks transferring totally to the purchaser. Impairment tests are performed on fi nancial assets or groups of financial assets at each balance sheet date. Impairments are recognized through the income statement. Financial assets are impaired if, following one or several events occurring after initial recognition of the asset, there is an objective indication that the expected future cash flows have undergone a negative change. Objective indications of impairments may include, for example, significant financial difficulties on the part of the debtor, or payment default. In the case of financial assets measured at amortized cost, the impairment expense corresponds to the difference between the carrying amount of the financial instrument and the present value of the future cash flows discounted using the original effective interest rate. With the exception of equity instruments, impairment losses on fi nancial assets are reversed and recognized in income up to the level of amortized cost excluding impairment if the reasons for the impairment cease to apply.

GEA Group Annual Report 2008

99

Notes to the Consolidated Financial Statements Accounting principles

Balance sheet hedging relationship (“Hedging”) Derivative financial instruments are designated at the time they are entered into either as a hedge relating to the fluctuation in the fair value of assets, liabilities, or binding agreements (fair value hedges), or as a hedge relating to future cash flows in connection with assets and liabilities (cash flow hedges). In order to effectively hedge risks relating to a change in fair value, not only the change in the value of the derivative, but also that of the hedged item, is reported through the income statement. Fluctuations in fair value are offset in the case of a perfect hedge. If derivatives are used as cash flow hedges, the hedge-effective portion of the change in the derivative’s fair value is reported in equity. The hedge-effective portion of the change in fair value is recognized in the income statement. The item recognized in equity arising from the hedge-effective portion of the change in fair value is recognized in the income statement as soon as the hedged item is settled. If settlement of the underlying transaction leads to the recognition of a non-financial asset, the deferred value impairments previously booked through equity are offset against the cost of purchasing the non-financial asset. If, contrary to previous assumptions, the hedged item is not executed, the value impairments previously booked through equity are reported through the income statement. Embedded financial derivatives are separated from their host contracts if certain qualifying conditions in terms of their recognition and measurement are met. The Group predominantly uses cash flow hedges to hedge foreign currency and interest rate risks. GEA Group also uses hedging in accordance with its risk management principles, which contribute to hedging existing risks in economic terms, but do not satisfy the stringent requirements for balance sheet hedging relationships of IAS 39. Currency futures used to hedge currency risks arising from monetary balance sheet items are not aggregated to form a balance sheet hedging relationship. Effects arising from the translation of balance sheet items that are booked through the income statement are largely compensated by fluctuations in the fair values of futures transactions that are also booked through the income statement. GEA Group does not currently apply regulations relating to the hedging of fluctuations in fair value through the use of a fair value hedge.

100 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

Deferred taxes Deferred tax assets and liabilities are formed for all temporary differences between the carrying amounts in the respective national tax accounts and those in the IFRS accounts included in the consolidated financial statements. Deferred tax assets are also recognized for tax losses carried forward. Deferred tax assets arising from deductible temporary differences and tax losses carried forward are recognized only to the extent that there is likely to be sufficient taxable income in the future. No deferred tax liabilities are recognized on taxable temporary differences arising from investments in subsidiaries, associates, or joint ventures, as long as reversal of temporary differences is unlikely.

Inventories Inventories are recognized at the lower of cost and net realizable value. The cost of purchase is calculated at average cost or using the fi rst-in, first-out (FIFO) method. The cost of sales includes direct costs, attributable materials and manufacturing overheads, depreciation charges and production-related administrative costs. The net realizable value is calculated as the estimated sales proceeds minus costs incurred until completion, plus selling expenses. Impairments already recognized must be reversed if the reasons for the impairment cease to apply. The impairment is then reversed up to an amount not exceeding the amortized historical cost.

Trade receivables Trade receivables include no interest and are recognized in the balance sheet at their nominal value less appropriate adjustments for irrecoverable debts. Trade receivables due from financial services enterprises, and sold under factoring agreements, are derecognized once the related opportunities and risks have mainly transferred to the financial services company.

GEA Group Annual Report 2008 101

Notes to the Consolidated Financial Statements Accounting principles

Construction contracts Receivables and sales arising from construction contracts are reported according to the percentage-of-completion (PoC) method. The percentage of completion is determined using the cost-to-cost method, which is derived from the ratio of contract costs incurred to the total estimated contract costs. Contracts are measured at cost of sales plus a profit in proportion to the percentage of completion. Discounts are applied to reflect risks. Losses on construction contracts are immediately recognized in full in the fi nancial year in which they are identified, regardless of the percentage of completion at that point. If the contract costs incurred, and the gains or losses recognized, exceed the discounts made, the excess amount is capitalized. This item is reported under “trade receivables”. If the progress-billing payments received exceed the accrued costs and recognized gains or losses at the balance sheet date, they are reported as a liability among “trade payables”. Advances received for construction contracts are reported separately as liabilities. If the margin on the contract cannot be estimated reliably, the revenue is recognized only to the value of the contract cost incurred (zero-profit method). A profit is only recognized if the margin on the contract can be estimated reliably. Payments for divergent amounts in the overall contract, claims and premiums are included among revenue from the contract to the extent agreed with the customer.

Cash and cash equivalents Cash and cash equivalents comprise cash, sight deposits and fi nancial assets, which can be converted into cash at any time and which are subject to only slight fluctuations in value. They are recognized at fair value.

Non-current assets “held for sale” and corresponding liabilities Non-current assets or groups of assets classified as “held for sale” as per IFRS 5 are recognized at the lower of the carrying amount and fair value less disposal costs. They are classified as “held for sale” if their sale is very likely, the assets, or groups of assets, held for sale are available for immediate sale and their sale will have been completed within one year of their classification as “held for sale”. As the carrying amount of depreciable assets is realized by disposal rather than use, they are no longer depreciated when reclassified. Corresponding liabilities are reported as “liabilities related to assets held for sale”.

102 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

Issued capital Common shares are classified as equity. Treasury shares are deducted from the equity attributable to the shareholders of GEA Group Aktiengesellschaft.

Pension obligations The obligations arising from pension plans include post-employment benefits. Obligations arising from pension plans are calculated using the projected unit credit method. In order to ensure that it can render pension benefits, the company holds financial assets in longterm investment funds outside the GEA Group (plan assets) and takes out qualified insurance policies. The amounts of provisions reported are based on calculations performed by independent actuaries. Where actuarial gains and losses exceed 10 percent of the higher of either the present value of the defi ned benefit obligation, or of the plan assets at the balance sheet date, they are apportioned over the beneficiaries’ average residual service period, and recognized in income. The interest included in pension costs is reported under financing costs. The anticipated return on plan assets is shown as part of financing income. The service cost for the period is recognized under the relevant functional costs. The pension plan obligation reported in the balance sheet represents the net present value of the obligation at the balance sheet date plus as yet unrecognized actuarial gains (less unrecognized actuarial losses), minus as yet unrecognized past service cost. The fair value of plan assets, where present, is deducted from the obligation.

Other obligations to employees Other obligations to employees comprise other non-current benefits and all current benefits. Current obligations to employees generally fall due in full no more than 12 months following the performance of the relevant service or work. They include wages, salaries, social insurance contributions, paid vacation and profit-sharing schemes. They are charged to the income statement at the same time as the work being remunerated. Any expenditure in excess of the payments already made is reported as a deferred liability at the balance sheet date. Other non-current benefits, such as long-service awards or age-related part-time employment contracts, are recognized at the present value of the obligation at the balance sheet date.

GEA Group Annual Report 2008 103

Notes to the Consolidated Financial Statements Accounting principles

Provisions Provisions for contingent liabilities are reported when a legal or constructive obligation to a third party exists, the related cash outflow is likely and its probable amount can be estimated reliably. The cost of accruing provisions for warranties is included in the cost of sales at the time the revenue is recognized. In all other cases, provisions are set aside when the product is accepted by the customer. The measurement of the provision is based both on the warranty cost actually incurred in the past and on the evaluated overall risk inherent in the plant, equipment, or product. Provisions are also formed if a claim is made under a warranty and a loss is deemed likely. Rights of recourse against suppliers are capitalized, providing their services are subject to a warranty and it is highly likely that the claim can be enforced.

Financial liabilities Financial liabilities include bonds, liabilities to banks and liabilities under fi nance leases. They are initially recognized at fair value less transaction costs incurred. They are subsequently measured at amortized cost using the effective interest rate method. Liabilities under finance leases are initially measured at the lower of the fair value of the leased asset and the present value of minimum lease payments.

Other liabilities The recognition and subsequent measurement of other liabilities is the same as for financial liabilities.

Trade payables Trade payables include liabilities for goods received, or services already performed, which have not yet been invoiced since there is a slight uncertainty as to the extent of the liability.

104 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

Sales recognition Sales generated by products are recognized when delivery occurs, and the price risk related to the goods passes to the customer. Sales under service agreements are recognized when the service is performed. Sales are recognized at the fair value of the goods or services received, or to be received. Customer bonuses, discounts, rebates, other allowances and the elimination of intercompany profits and income reduce the amount of revenue recognized. Sales from construction contracts are generally recognized using the percentageof-completion method. Interest and similar income is recognized among financial income pro rata temporis over the residual term based on the effective interest rate and the amount of the residual receivable. Sales proceeds from user fees are recognized in the period in which they arise based on the underlying contracts.

Research and development Research costs are expensed as incurred. Development costs used to significantly develop a product or process are capitalized if the product or process is technically and commercially viable and marketable, the cost can be determined reliably and sufficient resources are available to complete the development project. All other development costs are expensed as incurred. Capitalized development costs for completed projects are reported at cost of sales less cumulative amortization. Development costs incurred as a matter of necessity under construction contracts are capitalized as cost of sales.

Government grants Government grants are recognized at fair value provided the Group meets the conditions necessary to receive the grant. Government grants to meet expenses are recognized over the period in which the costs for which the grants were awarded are incurred. Government grants for capital expenditure are deducted from the cost of purchase of the corresponding asset.

Estimates The preparation of these consolidated financial statements requires estimates and assumptions to be made that have an impact on the company‘s assets, liabilities, provisions, deferred tax assets and liabilities, income and expenses, as well as the contingent assets and liabilities reported. Although such estimates and assumptions are made carefully and in good faith, it cannot be excluded that the actual amounts that arise may differ from these estimates.

GEA Group Annual Report 2008 105

Notes to the Consolidated Financial Statements Accounting principles

Factors that may cause these amounts to differ adversely from the projections include a deterioration in the global economy, movements in exchange rates and interest rates, significant litigation and changes in environmental or other legislation. Production errors, the loss of key customers, and rising funding costs may also impair the Group’s future performance. The recognition and measurement of the following assets and liabilities are partly based on the management’s assumptions. All assumptions are made conscientiously, and according to the best state of our knowledge, in order to convey a true and fair picture of the company’s assets, financing and earnings positions. If actual circumstances later diverge from those assumed, this has an impact on the recognition and measurement of assets and liabilities. Acquisitions Goodwill is reported in the balance sheet as the result of corporate acquisitions. When an acquired company is first consolidated, all its identifiable assets, liabilities and contingent liabilities are recognized at fair value as of the acquisition date. The main problem in this respect is estimating these fair values. As a rule, land and buildings are measured on the basis of independent valuations. If intangible assets are identified, their fair values are calculated internally using an appropriate valuation method. These measurements are performed on the basis of assumptions that the management has made with respect to the future value of the relevant assets, as well as the imputed discount rate. Goodwill The Group tests goodwill for impairment once a year. The recoverable amount of cashgenerating units (divisions) has been calculated based on value in use. Calculations of the value in use are based on managerial assumptions (see Section 6.3). Taxes GEA group operates in many countries and is consequently subject to different tax jurisdictions. Determining tax liabilities requires a number of management estimates. The management assumes that it has made reasonable estimates of the incalculable aspects of its tax matters. No assurance can be given, however, that the actual outcome of such incalculable aspects does not diverge from the estimates that have been made. Any deviations may have an impact on the level of tax liabilities or deferred taxes in the year of the decision.

106 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Accounting principles

When assessing the recoverability of deferred tax assets, the company’s management appraises to what extent the deferred tax assets are likely to be realized. Whether the deferred tax assets can be realized in actuality depends on whether sufficient future tax income can be generated against which the temporary differences and loss carryforwards can be offset. To this end, the company’s management considers the time at which the deferred tax liabilities are reversed, as well as expected future tax income. The company’s management expects these deferred tax assets to be realized on the basis of projections of future tax income. Deferred tax assets may diminish if the estimate of planned tax income decreases, tax advantages available as a result of tax strategies are reduced, or the scope of future tax advantages resulting from amendments to laws is restricted in terms of level or timeframe. Provisions and contingent liabilities Changes in estimates of the probability of a present obligation or of a cash outflow may mean that items previously classified as contingent liabilities must be reported as provisions, or that the level of provisioning requires adjustment (see Section 7.2). This particularly also applies to obligations in the environmental area. Obligations under pension plans The present value of pension obligations depends on factors based on actuarial assumptions. These assumptions such include the discount interest rate, expected increases in salary, expected returns on plan assets, mortality rates and cost rises for medical care. These actuarial assumptions may divert significantly from actual future outcomes as a result of changes in market and economic conditions, and may consequently have a key impact on the level of the obligation and its related expenses. The anticipated returns on plan assets are calculated on a uniform basis that considers long-term historical returns, asset allocation and estimates of future long-term investment returns.

GEA Group Annual Report 2008 107

Notes to the Consolidated Financial Statements Accounting principles

The discount rate is calculated at the end of each year. This is the interest rate used to calculate the present value of future cash outflows expected to be required to settle the obligation. In order to calculate the discount rate, the Group uses the interest rate on investment-grade corporate bonds denominated in the same currency in which the benefits are paid and whose terms to maturity correspond to those of the pension obligations. A law was passed in France in 2008 that sets the minimum level of settlement payments. There nevertheless exists uncertainty currently as to which circumstances the law applies. If it were applied in all cases when employees left the company irrespective of the reason for their leaving the company, the present value of the defined benefit pension obligations would be around 1 percent higher as of December 31, 2008. Further material assumptions made for pension obligations are partly based on market conditions (see Section 7.3.1). Construction contracts The recognition of construction contracts under the percentage-of-completion method is based on managerial estimates of the cost of such contracts. Revisions of estimates or discrepancies between the estimated cost and the actual cost have a direct bearing on the profitability of construction contracts. The operating units continuously review the estimates, and adjust them as required. As in the previous year, the negative earnings effects from changes in estimates amount to a low triple-digit million figure in euros. These revised estimates related affected exclusively order-related indemnities for orders from the Lentjes business division. Litigation In some cases, GEA Group companies are parties involved in litigation. The outcome of this litigation could have a significant effect on the Group’s asset, financing and earnings positions. The management regularly analyses current information about this litigation and forms provisions for probable obligations, including estimated legal costs. Both internal and external lawyers are used to make this assessment. When deciding on the necessity for the formation of a provision, the management takes into account the probability of an unfavorable outcome, as well as the ability to sufficiently reliably estimate the level of the obligation. The bringing of a charge, or the formal assertion of a claim against a GEA Group company, does not necessarily necessitate the formation of a provision for the related risk

108 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Financial risk management

3. Financial risk management The Executive Board has created an effective set of rules in the form of guidelines to control fi nancial risks across the Group and thereby hedge, or largely limit, the risks involved. These rules clearly define the objectives for the protection of assets, the elimination of security loopholes, and efficiency improvements in the identification and analysis of risks, together with the relevant organizational structures, responsibilities and areas of expertise. The rules follow the principles of function separation, transparency, prompt documentation and system security. As a group that operates globally, GEA Group is exposed as part of its normal activity to currency risk, interest rate risks, risks relating to the prices of goods, credit risks and liquidity risks. Financial risk management aims to reduce these risks through the appropriate use of derivative and non-derivative hedging instruments.

Foreign currency risks Because of the international nature of GEA Group’s business, our cash flows are denominated not only in euros but also in a number of other currencies, particularly the US dollar. Hedging the resultant exchange rate risk forms a major part of our risk management operations. A standardized Group-wide policy forms the basis of the GEA Group’s centrally steered currency management strategies. This states that all Group companies must hedge their foreign-exchange exposures at the time they arise. The aim of such hedging is to lock in prices as a form of protection against adverse future exchange rate movements. The hedging periods are determined by the term to maturity of the hedged items. The term of currency derivatives used is usually no more than twelve months, but may go well beyond this period in exceptional cases. Although currency risk on individual contracts is usually excluded by means of hedging, significant medium- and long-term movements in exchange rates may influence sales opportunities. Subsidiaries based in the Eurozone are obliged to tender all outstanding exposures relating to transactions in goods or services in transaction currencies to the finance department at the GEA Group head office. Most of these tendered exposures are passed on directly to banks, provided their maturities are matched, and depending on the derivatives’ hedging purpose and the related nature of their accounting treatment. They may also be hedged as part of a portfolio hedge approach. The hedging of financial transactions and transactions conducted by our subsidiaries outside the Eurozone is also closely coordinated with the finance department at the Group head office. Contracts in emerging markets are usually invoiced in US dollars or euros.

GEA Group Annual Report 2008 109

Notes to the Consolidated Financial Statements Financial risk management

Interest rate risks Because of the international nature of our business, GEA Group raises liquidity and invests funds in the international money and capital markets in various currencies – mainly euros and US dollars – and with varying maturities. The resultant financial liabilities and investments are in general exposed to interest rate risk The aim of our centralized interest rate management operations is to evaluate and manage this interest rate risk. In order to hedge this risk, GEA Group may use derivative financial instruments on a case-by-case basis to minimize the interest rate volatility and financing costs of the hedged items. Only the finance department at the Group head office is permitted to enter into such interest rate instruments. With one minor exception, all interest rate derivatives are directly allocated to individual loan drawings. The hedging relationships are documented and entered in the balance sheet as cash flow hedges. The interest expense from the loans and the allocated derivatives reported in the income statement presents the fi xed interest rate in sum of the hedging relationship. Interest/currency swaps were used in connection with the financing of corporate acquisitions in Canada and the UK. They also recognized in the balance sheet at fair value. They form no documented hedging relationship to Group-internal hedged items, however. The earnings effects arising from changes to currency parities that have occurred since the inception of the interest/currency swaps, and the earnings effect arising from the related Group-internal receivables, are not of the same amount due to differing valuation bases (forward rate relative to cash rate). The valuation difference amounted to K EUR -4,708 in fiscal 2008 (previous year: K EUR 350).

Risks related to the prices of goods GEA Group requires various metals such as aluminum, copper, steel, and titanium. Purchase prices for raw materials may fluctuate significantly depending on the market situation. Long-term supply agreements are concluded with various suppliers in order to hedge risk arising from changes in the prices of goods. Ruhr-Zink GmbH has concluded commodity futures transactions in order to hedge its obligations arising from long-term supply agreements following the closure of production. Copper options also relate to an acquired company that predate its acquisition by GEA Group. Besides this, there are no commodity derivatives within the GEA Group.

110 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Financial risk management

Credit risks Financial instruments are generally exposed to default risk arising from potential nonsatisfaction on the part of the other contractual party. A standardized internal risk board procedure serves the counter customer receivable counterparty risk. Active receivables management has also implemented, which also includes genuine factoring as well as credit insurance. In the export business, confi rmed and unconfi rmed letters of credit are also used, as well as warranties, guarantees, and cover notes, including from export credit agencies such as Hermes. Besides local monitoring by the relevant subsidiary, GEA Group also supervises the most important customer relationships at the holding company level in order to better manage the potential accumulation of risks. Trade receivables exist as of December 31, 2008 with respect to a large number of customers from various sectors and various regions, thereby avoiding significant risk concentration. Where specific default risks exist, they are reflected through valuation adjustments. In the financial area, financial instrument transactions are agreed solely with well-known financial institutions in order to minimize default risks. The maximum counterparty risk is limited to the fair value.

Liquidity risks Liquidity risk for the GEA Group exists with respect to the non-satisfaction of payment obligations due to an insufficient availability of liquid funds or credit lines. The management of this risk is the task of GEA Group Aktiengesellschaft. Arrangements are made for liquid funds, and credit lines are managed, on the basis of multi-year financial planning, as well as on the basis of rolling liquidity planning. GEA Group Aktiengesellschaft makes the funds available internally to the operating companies according to their requirements. Cash pools have been set up in various countries in order to optimize the use of the liquid funds and the drawing down of loans within the GEA Group.

GEA Group Annual Report 2008 111

Notes to the Consolidated Financial Statements Financial risk management

The following tables show the undiscounted, contractually agreed interest and principal payments for financial liabilities, including derivative financial instruments with negative fair values: Cash flows Carrying (K EUR)

amount

5 Years

Trade payables

723,650

721,470

2,180

-

-

-

-

Borrower's note loan

199,549

8,879

7,027

206,773

-

-

-

Liabilities to banks

300,743

284,487

6,053

1,963

1,805

11,584

3,721

14,447

1,570

1,744

1,037

1,172

1,612

14,683

-

-

-

-

-

-

-

Currency derivatives without balance sheet hedging relationship

11,884

283,315

14,592

1,368

-

-

-

Currency derivatives used as cash flow hedges

17,095

163,133

28,702

14,064

881

-

-

2,153

3,858

3,736

3,638

3,209

2,856

8,356

Interest and interest/currency derivatives used as cash flow hedges

13,332

8,248

8,269

8,335

225

-

-

Commodity derivatives without balance sheet hedging relationship

1,285

986

299

-

-

-

-

707,875

701,111

6,771

-

-

-

-

767,505

765,525

1,980

-

-

-

-

-

-

-

-

-

-

-

218,395

216,014

7,234

941

914

650

1,184

10,996

1,603

1,302

2,064

999

799

8,084

914

914

-

-

-

-

-

Currency derivatives without balance sheet hedging relationship

3,467

122,705

1,433

-

-

1,779

-

Currency derivatives used as cash flow hedges

3,111

82,446

9,367

1,665

-

-

-

2,699

4,319

4,190

4,076

3,942

3,824

36,655

Interest and interest/currency derivatives used as cash flow hedges

190

4

82

78

65

30

-

Commodity derivatives without balance sheet hedging relationship

-

-

-

-

-

-

-

665,412

661,599

4,468

-

-

-

-

2008

Liabilities under finance leases Liabilities to equity investments

Interest and interest/currency derivatives without balance sheet hedging relationship

Other liabilities 2007 Trade payables Borrower's note loan Liabilities to banks Liabilities under finance leases Liabilities to equity investments

Interest and interest/currency derivatives without balance sheet hedging relationship

Other liabilities

Outgoing payments for derivative financial instruments totaling K EUR 558,070 (previous year: K EUR 276,660) were offset by payments received of K EUR 508,914 (previous year: K EUR 266,644). As of December 31, 2008, there were cash credit lines including the borrower’s note loan of K EUR 200,000 of K EUR 1,160,447 (previous year: K EUR 1,162,037). Of this amount, cash credit lines of K EUR 660,155 (previous year: K EUR 943,619) had not been utilized. In addition, there were guarantee lines of K EUR 2,464,611 (previous year: K EUR 2,479,515)

112 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Financial risk management

available for performance of contracts, advances and warranty obligations, of which K EUR 1,088,596 (previous year: K EUR 1,165,819) was used. Of this amount, performance guarantees of K EUR 531,457 (previous year: K EUR 678,767) are “payable at the first demand”. As is usual for this type of order security and financing instrument, guarantees were drawn down only in very seldom and exceptional cases by the GEA Group in recent years. As of the year-end, K EUR 144,903 (previous year: K EUR 197,300) of guarantees arising from GEA Group Aktiengesellschaft credit lines, and K EUR 262,585 (previous year: K EUR 276,315) of Group guarantees, were granted to collateralize contractual obligations on the part of Lurgi AG to its customers. Of the guarantees, K EUR 127,286 (previous year: K EUR 172,651) are “payable at the first demand”. The purchaser of Lurgi granted guarantees with a total volume of K EUR 333,000 (previous year: K EUR 333,000) as collateral in favor of GEA Group Aktiengesellschaft for the unlikely event of default of both Lurgi AG and Air Liquide S.A. As of the year-end, K EUR 133,916 (previous year: K EUR 170,604) of guarantees arising from GEA Group Aktiengesellschaft credit lines, and K EUR 146,759 (previous year: K EUR 171,887) of Group guarantees, were granted to collateralize contractual obligations on the part of Lentjes GmbH to its customers. Of the guarantees, K EUR 71,037 (previous year: K EUR 102,673) are “payable at the first demand”. The purchaser of Lentjes has also granted a Group guarantee of K EUR 20,000 (previous year: K EUR 20,000) and a bank guarantee bond of K EUR 10,000 (previous year: K EUR 10,000) in favor of GEA Group Aktiengesellschaft. The future lease payments from operating leases are reported separately under other financial liabilities (please refer to Notes 9.2). All financial liabilities outstanding as of December 31, 2008 are included, to the extent that payments have already been contractually agreed. Budgeted figures for future new liabilities have not been taken into account. Foreign currency amounts were translated using the exchange rates prevailing on the balance sheet date. In the case of financial liabilities that can be repaid at any time, it is assumed that they will be repaid within one year.

GEA Group Annual Report 2008 113

Notes to the Consolidated Financial Statements Financial risk management

Foreign currency sensitivity analysis GEA Group companies are always exposed to foreign currency risk when their cash flows are denominated in a currency other than their relevant functional currency. Since foreign currency risks are generally hedged using appropriate hedging instruments, the effects arising from the hedged item and the hedging transaction are neutralized over their duration. The foreign currency risk presented in the sensitivity analysis results firstly from hedging relationships with hedged items that have not been recognized in the balance sheet as of that juncture, in other words, hedges relating to contractually fi xed as well as expected transactions. Since such hedging relationships are regularly documented as such and presented as cash flow hedges, only equity is affected by risk arising from changes to the exchange rate. Secondly, interest/currency swaps give rise to a foreign currency risk affecting earnings. Although swaps mirror Group-internal receivables as hedged items, they do not form a documented hedging relationship. While receivables are measured using the cash rate, the measurement of the currency components of swaps is based on forward rates. Both rates may be diverge significantly from each other depending on the interest-rate difference between the two currencies. The currency pairs in which most foreign currency cash flows are processed are taken into account as relevant risk variables for the foreign currency sensitivity analysis. The following table shows the sensi-tivity for the group perspective of an increase or decrease of the relevant foreign currency of 10 percent with respect to the relevant basis currency.

(K EUR)

Nominal volume

Net income for the year

Equity

2008

2008

Basis

Foreign

currency

currency

+10 %

- 10 %

+10 %

-10 %

EUR

USD

261,853

-653

798

10,726

-13,109

EUR

GBP

87,847

633

-774

-819

1,001

EUR

CNY

40,540

-33

40

3,366

-4,115

EUR

CAD

38,897

3,637

-4,446

-7

8

EUR

INR

12,149

-953

1,165

-

-

USD

MXN

10,185

-925

1,131

-

-

The nominal volumes relate to contractually fi xed foreign currency cash flows as of the balance sheet date translated into euros on the balance sheet date. If the euro had been 7 percent stronger (weaker) relative to the US dollar on December 31, 2007, Group equity would have been K EUR 6,305 higher (lower), and net income K EUR 287 lower (higher). If the euro had been a 9 percent stronger (weaker) relative to the Canadian dollar on December 31, 2007, Group equity would have been K EUR 1,877 higher (lower), and net income K EUR 2,751 higher (lower).

114 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Financial risk management

The potential fluctuations in the annual net income result primarily from derivatives that are not used for accounting hedging purposes, but are used instead as part of the general hedging strategy to avoid currency risks.

Sensitivity analysis The sensitivity analysis presents the effects of changes in market interest rates on interest payments, interest income and expenses, and equity. The sensitivity analyses are based on the following assumptions: – Primary fi xed-income financial instruments are only subject to balance-sheet-related interest rate risk if they are measured at fair value. Such fi nancial instruments are measured at amortized cost in the GEA Group. – Primary variable-rate financial instruments, whose interest payments are not included as hedged items in a hedging relationship that has been recognized in the balance sheet as a cash flow hedge, are subject to interest rate risk both in terms of recognition in the income statement and in terms of cash flow (cash-effective and earnings-effective interest rate risks). – Interest rate derivatives included in a hedging relationship that has been recognized in the balance sheet as a cash flow hedge are subject to equity-effective interest rate risk to the level of the effective portion of the hedging relationship (balance-sheet-effective interest rate risks). – Interest rate derivatives that have been recognized in the balance sheet as cash flow hedges are subject to interest rate risk both in terms of recognition in the income statement and in terms of cash flow (cash-effective and earnings-effective interest rate risks). – Currency derivatives are not subject to major interest rate risks, and consequently have no effect on the interest rate sensitivities. The sensitivity analysis imputes a linear shift in the yield curve for all currencies of +100/ -100 basis points as of the balance sheet date. This would give rise to the following effects: 12/31/2008 (K EUR) Cash-effective interest rate risks Balance-sheet-effective interest rate risks Earnings-effective interest rate risks

12/31/2007

+100 basis points

- 100 basis points

+ 100 basis points

- 100 basis points

-5,968

6,071

2,584

-2,584

4,332

-4,475

297

-297

-6,468

6,304

1,803

-1,803

The calculation is based on a net volume of K EUR 693,718 (previous year: K EUR 16,274).

GEA Group Annual Report 2008 115

Notes to the Consolidated Financial Statements Financial risk management

Capital management The most important fi nancial objectives of GEA Group Aktiengesellschaft include the sustained enhancement of corporate value in the interests of investors, employees, customers, and suppliers while at the same time safeguarding and securing the ability to make payments at all times. The intention is that this objective should fi nd key support through a focus on margin quality. This does not exclude external growth through acquisitions. Improving profitability through boosting returns on capital employed is the priority in all business decisions. In order to achieve this, further share repurchases will also be considered, if required, as part of the reduction of capital costs and optimization of the capital structure. In this type of capital management, the creation of sufficient liquidity reserves including comfortable levels of credit lines is of great importance to the GEA Group. Besides this, the retention of solid equity capital backing is also an important prerequisite to secure the long-term continued existence of the company, and to continue its growth strategy. Liquidity reserves and free credit lines are managed constantly on the basis of short- and medium-term forecasts of future liquidity and borrowing requirements. Capital is monitored regularly on the basis of various key indicators. The most important key indicators in this respect are the net debt to equity ratio (gearing) and the equity ratio. Net debt in this case represents liabilities to banks including the borrower’s note loan minus cash and cash equivalents, as well as short-term securities.

(K EUR)

12/31/2008

12/31/2007

Liabilities to banks

300,743

218,395

Borrower's note loan

199,549

-

-439,554

-279,162

-513

-503

Cash and cash equivalents Current securities Net financial liabilities Equity Equity ratio Gearing

116 GEA Group Annual Report 2008

60,225

-61,270

1,455,405

1,413,678

28.4 %

29.8 %

4.1 %

-4.3 %

Notes to the Consolidated Financial Statements Financial risk management

The equity ratio amounted to 28.4 percent as of December 31, 2008 (previous year: 29.8 percent). Gearing amounted to 4.1 percent following -4.3 percent in the previous year. Consequently, the capital financing structure provides a very healthy basis, and the GEA Group continues its planned fi xed asset investments as well as its acquisition strategy. The rating agencies have allocated the following external assessment of GEA Group’s financial risks:

Agency

Rating

Outlook

Moody‘s

Baa3

stable

Fitch

BBB-

positive

Given an investment grade rating in the “BBB” categories, GEA Group enjoys comfortable opportunities to fi nance itself not only using bank borrowings but also through direct capital procurement in the capital markets. Among other things, the current ratings reflect the company’s good capacity to make payments, and they generally secure access to a broad investor base. For example, a K EUR 200,000 borrower’s note loan with a three-year term was issued in August 2008 within a fi nancing syndicate consisting of 34 banks.

GEA Group Annual Report 2008 117

Notes to the Consolidated Financial Statements Disposals and Discontinued Operations

4. Disposals and Discontinued Operations 4.1 Ruhr-Zink With the approval of the Supervisory Board, the Executive Board of GEA Group Aktiengesellschaft had decided in the third quarter to sell Ruhr-Zink GmbH and its subsidiary MG Rohstoff handel GmbH. The long-held intention to sell was based on the change our Group structure has undergone. GEA Group has developed over recent years into a pure mechanical engineering group with a focus on components manufacturing and engineering. After speculation had driven the zinc price to record levels in 2006 and 2007, it has fallen significantly since mid-2007. Energy costs have also risen significantly in recent years. The combination of these negative factors for Ruhr-Zink GmbH have forced to fi nd a sustainable solution. GEA Group conducted disposal negotiations with potential buyers for the Ruhr-Zink until mid-October. After the last investors offering the prospect of a successful outcome withdrew from discussions, and the economic survival of the company was no longer possible given the economic situation, the Management Board, with the approval of the Supervisory Board, decided to discontinue the business operations of Ruhr-Zink GmbH. Following the successful conclusion of negotiations with the works council regarding a compensation plan and a settlement of interests, the Executive Board decided to close Ruhr-Zink GmbH as of December 31, 2008. MG Rohstoff handel GmbH, which is operating profitably, will be continued as a separate company. A buyer is being sought for this business.

118 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Disposals and Discontinued Operations

The table below provides a breakdown of the net income on the discontinued Ruhr-Zink operations:

(K EUR) Revenue Other income Expenses Net interest result Net loss/income on discontinued operations Taxes Net loss/income on discontinued operations

1/1/2008 -

1/1/2007 -

12/31/2008

12/312007

204,397

342,605

5,356

1,200

-289,972

-322,715

-2,248

-2,181

-82,467

18,909

-2,006

-1,635

-84,473

17,274

The write-down applied to the fi xed assets, the redundancy plan and settlement of interest, as well as the other closure costs, including the risk provision for environmental cleanup, are included in expenses.

GEA Group Annual Report 2008 119

Notes to the Consolidated Financial Statements Disposals and Discontinued Operations

4.2 Plant Engineering With the consent of the Supervisory Board, the Executive Board of GEA Group Aktiengesellschaft decided to sell the Plant Engineering segment together with the Zimmer, Lentjes and Lurgi divisions in 2006. The Emission Control Division remains with the GEA Group and is now allocated to the Energy and Farm Technology Segment. – The Zimmer Division had already been sold in 2006. One part of the activities were sold to Trützschler Group, Mönchengladbach/Germany, and the other part was sold within the Group to Lurgi. – The Lurgi Division was sold to Air Liquide Group, Paris/France. The sale took place on July 20, 2007. – The Lentjes Division was sold to a subsidiary of A-Tec Industries AG, Vienna/Austria. The agreement was signed on December 21, 2007. The table below provides a breakdown of the net result on the discontinued operations: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Revenue

-

714,087

Other income

-

79,921

Expenses

-

-924,894

Net interest result

-

32,455

Net income/loss before taxes

-

-98,431

Taxes

-

-42,025

Net income/loss after taxes

-

-140,456

-168,579

167,614

(K EUR)

Net gain/loss on disposal Taxes Net loss/income on discontinued operations

-7,235

-3,460

-175,814

23,698

The loss on disposal of K EUR -168,579 results almost exclusively from project-related indemnities for orders and legacy orders from the Lentjes Division. These resulted in charges of K EUR 187,350. They result from further delays in completion of long term contracts, which have resulted in costs related from acceleration measures, additional costs relating to the extended use of construction sites and contractual liquidated damages for delay. Reversals of provisions had a counter effect. The tax effect of K EUR -7,235 is also attributable to these release of provisions. The net disposal gain of K EUR 167,614 in the previous year also contains the transaction costs and the expenses arising from the formation of balance sheet provisions for the assurances and guarantees agreed in the share purchase agreements, as well as for the risk arising from the purchase price adjustment mechanism included in the Lurgi purchase agreement.

120 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Disposals and Discontinued Operations

The assurances and warranties relate to, firstly, such as indemnity from legal defects of the assets that have been sold, or indemnities from environmental and tax risks, and, secondly, indemnity from risks arising from particular projects. The guarantees and warranties comprise not only minimum thresholds, but also staggered maximum limits. With the exception of the project-related indemnities, the payments to be made under guarantees and warranties are limited in terms of level. The previous year’s current earnings also include income of K EUR 91,202 from the release of the provision that was formed to reflect the risk that the payment received for the construction of a carpet recycling plant is repaid. This income includes cancelled interest of K EUR 17,602. A tax expense of K EUR 35,478 is attributable to this income.

4.3 Operations discontinued in previous periods Before 2007 GEA Group sold the business units Dynamit Nobel Group, the Dynamit Nobel Plastics Group, Solvadis and the boiler plant business. These were treated in the accounts as discontinued operations. These operations generated total income before tax of K EUR 15,654 in fiscal 2008 (previous year: K EUR in 11,952). This income mainly results from the release of provisions. Tax effects of K EUR -3,365 (previous year: K EUR -6,581) are attributable to this income.

GEA Group Annual Report 2008 121

Notes to the Consolidated Financial Statements Disposals and Discontinued Operations / Acquisitions

4.4 Effects of disposals GEA Group sold its 51 percent stake in Procme GmbH, Bad Kreuznach, in 2008. The table below shows the net assets of the company at the time it was sold:

(K EUR) Non-current assets

2008

2007

470

25,420

Current assets

1,811

1,176,025

Liabilities

1,826

978,081

Net assets including minority interest and accumulated other comprehensive income Minus minority interest Minus accumulated other comprehensive income

455

223,364

-223

-919

-

-2,260

232

220,185

100

571,859

-132

351,674

Net assets excluding minority interest and accumulated other comprehensive income Sale price Gains on disposals

100

571,859

Outflow of cash and cash equivalents

Cash received from the disposal

-354

-660,834

Net cash flow from the disposal

-254

-88,975

The previous year’s figures refer to the companies of the Lentjes and Lurgi divisions, as well as Lesatec s.r.l., Opera/Italy.

5. Acquisitions 5.1 Norbco Inc. The Farm Technologies Division acquired all shares in Norbco Inc., Westmoreland (NY)/ USA, as well as its two subsidiaries, on July 11, 2008, thereby strategically expanding its product range. In addition to parlor stalls, Norbco is a manufacturer and distributor of farm equipment including ventilation equipment, cow mattresses, barn curtains, barn cleaners and free stalls, all of which place a distinct value on cow comfort. The company has a workforce of around 100 employees. Since the acquisition, Norbco has generated revenue of K EUR 15,753 and earnings before tax of K EUR 1,128.

122 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Acquisitions

The following assets and liabilities were acquired as a result of the purchase of Norbco:

(K EUR) Property, plant and equipment Intangible assets

Carrying amount

Fair value

795

795

66

6,276

861

7,071

Inventories

6,629

7,016

Trade receivables

1,032

1,032

Non-current assets

Other financial assets

53

53

3,237

3,237

Current assets

10,951

11,338

Total assets

11,812

18,409

Provisions

1,580

1,580

Trade payables

2,192

2,192

Financial liabilities

1,998

1,998

Current liabilities

5,770

5,770

Total liabilities

5,770

5,770

Net assets acquired

6,042

12,639

Cash and cash equivalents

Cost of purchase, including incidental costs Goodwill

16,914 4,275

As part of the breakdown of the purchase price, the customer base and dealer network, in particular, were identified and capitalized as separate intangible assets. The acquired technology and product know-how was ascribed only a comparatively low value. The remaining excess of K EUR 4,275 of purchase costs including incidental costs above the fair value of the net assets shown in the balance sheet is justified mainly as a result of the workforce’s know-how, as well as the resultant strategic advantage of now being able to offer stall construction along with milking facilities, which plays a critical role in the selection of milking systems.

GEA Group Annual Report 2008 123

Notes to the Consolidated Financial Statements Acquisitions

5.2 Bloksma B.V. The purchase of all shares in Bloksma B.V., Almere/Netherlands, was concluded on August 19, 2008, following anti-trust approval. Bloksma’s business strengthens the activities of the Process Equipment Division in the industrial and shipbuilding charge air cooler areas. The company along with its equity investments employs around 160 staff members. Bloksma has generated a loss of K EUR 2,323 on revenue of K EUR 10,728 since it was acquired. The following assets and liabilities were acquired as a result of the purchase of Bloksma:

(K EUR)

Carrying amount

Fair value

5,881

6,286

Intangible assets

138

11,214

Investments in at-equity accounted companies

453

453

Property, plant and equipment

Other financial assets

-

41

Non-current assets

6,472

17,994

Inventories

5,655

5,926

Trade receivables

6,734

6,734

Other financial assets

552

552

Cash and cash equivalents

103

103

Current assets

13,044

13,315

Total assets

19,516

31,309

Obligations to employees Other financial liabilities Deferred taxes Non-current liabilities

56

56

2,848

2,848

881

3,815

3,785

6,719

Provisions

421

421

Obligations to employees

391

391

Financial liabilities

1,256

1,256

Trade payables

4,239

4,239

Other financial liabilities

2,260

2,260

Current liabilities

8,567

8,567

12,352

15,286

7,164

16,023

Total liabilities Net assets acquired Cost of purchase, including incidental costs

27,065

Goodwill

11,042

As part of the breakdown of the purchase price, primarily the technology portfolio, the customer relationships and the Bloksma brand-name were identified and capitalized as

124 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Acquisitions

separate intangible assets. The remaining differential amount of K EUR 11,042 between the purchase costs including incidental costs and the fair value of the net assets recognized in the balance sheet contains the workforce’s know-how and the synergy potential arising from strengthening the market position in the shipbuilding and industrial heat exchange areas.

5.3 Bliss & Co. Ltd. (International Cooling Group) The Refrigeration Division acquired all shares in Bliss & Co. Ltd., Fareham/United Kingdom, the holding company of the International Cooling Group (ICG), on September 26, 2008. ICG manufactures vaporizers and condenser units for industrial refrigeration technology mainly under the brand names Searle and Raffel. The group, with its companies in the United Kingdom, France and Germany, employs around 500 staff members. The acquisition allows the division to augment both its product range and its geographic presence. ICG generated earnings before tax of K EUR 733 on revenue of K EUR 15,518 in the fourth quarter of 2008. The following assets and liabilities were acquired as a result of the purchase of ICG:

(K EUR) Property, plant and equipment Intangible assets Deferred taxes Non-current assets

Carrying amount

Fair value

9,644

9,644

-

22,413

38

38

9,682

32,095

Inventories

10,828

11,164

Trade receivables

14,787

14,787

956

956

Other financial assets Cash and cash equivalents

5,231

5,231

Current assets

31,802

32,138

Total assets

41,484

64,233

Provisions

2,521

2,521

Financial liabilities

9,048

9,048

Other financial liabilities

1,519

1,519

Deferred taxes Non-current liabilities Provisions and obligations to employees

-

6,712

13,088

19,800

216

216

Trade payables

11,385

11,385

Other financial liabilities

11,357

11,357

Current liabilities

22,958

22,958

Total liabilities

36,046

42,758

5,438

21,475

Net assets acquired Cost of purchase, including incidental costs

37,542

Goodwill

16,067

GEA Group Annual Report 2008 125

Notes to the Consolidated Financial Statements Acquisitions

As part of the breakdown of the purchase price, particularly the Searle and Raffel brand names, the customer base and the condensers and evaporators technology were identified and capitalized as separate intangible assets. The remaining excess relative to acquisition costs, including incidental costs of purchase, over and above the fair value of the reported net assets represents goodwill of K EUR 16,067. The goodwill mainly reflects both technological and geographic synergies arising from the merger. ICG is particularly strongly represented in France and Germany, two countries where the Refrigeration Division still commands a weaker market presence. It is particularly the evaporator product group that augments the division’s product range from a technological standpoint.

5.4 Other acquisitions Above and beyond this, various GEA Group divisions made four further acquisitions in fiscal year 2008, which were not of a material extent on an individual basis. In sum, they had the following effect on the consolidated financial statements based on figures as of the relevant times of acquisition.

(K EUR)

Carrying amount

Fair value

2,603

2,603

31

9,734

Non-current assets

2,634

12,337

Inventories

7,234

7,558

Trade receivables

9,329

9,329

327

327

Property, plant and equipment Intangible assets

Other financial assets Cash and cash equivalents

1,058

1,058

Current assets

17,948

18,272

Total assets

20,582

30,609

Financial liabilities

648

648

Deferred taxes

220

2,764

Non-current liabilities

868

3,412

2,133

2,375

502

502

Provisions Obligations to employees Financial liabilities Trade payables Income tax liabilities

269

269

4,215

4,215

451

451

4,910

4,910

Current liabilities

12,480

12,722

Total liabilities

13,348

16,134

7,234

14,475

Other financial liabilities

Net assets acquired Cost of purchase, including incidental costs Differential amount

126 GEA Group Annual Report 2008

17,000 2,525

Notes to the Consolidated Financial Statements Acquisitions

In the case of the acquisition of one company, the net assets entered in the balance sheet at fair value exceeded acquisition costs, including incidental costs, by K EUR 2,260. This differential amount was booked through the income statement and reported under other income. This income reflects the favorable nature of the acquisition. Consequently, other corporate acquisitions generated goodwill of K EUR 4,785. In the case of one corporate merger, the purchase price allocation has been performed only on a provisional basis to date, since further modifications are anticipated following the receipt of additional information. These companies have generated revenue of K EUR 26,441 since their acquisition. Their earnings before tax contribution amounts to K EUR 3,988. This amount includes income from the realization of the differential amount between acquired net assets and lower purchase costs. The 7 (previous year: 3) corporate acquisitions during 2008 resulted in the following aggregated outflow of cash:

(K EUR) Cost of purchase Incidental costs

2008

2007

94,833

96,309

3,688

2,693

minus non-cash purchase price components

-9,095

-1,186

Purchase price payments including incidental costs

89,426

97,816

minus cash acquired

-9,629

-21,265

Cash outflow on acquisitions

79,797

76,551

The incidental costs contain fees for legal consultants, auditors and other experts. The non-cash purchase price components mainly relate to the acquisition of ICG. If the acquisitions had been acquired with effect from January 1, 2008, these enterprises would have additional consolidated revenue of K EUR 184,346 and consolidated income before tax of K EUR 9,376.

GEA Group Annual Report 2008 127

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6. Notes to the Consolidated Balance Sheet: Assets 6.1 Property, plant and equipment The changes in property, plant and equipment were as follows:

(K EUR)

Land and buildings (used by GEA Group)

Plant and equipment

Office and plant equipment

Assets under construction

Total

1/1/2007 408,998

529,932

252,237

34,329

1,225,496

-214,204

-407,372

-198,840

-149

-820,565

194,794

122,560

53,397

34,180

404,931

Additions

31,325

37,607

27,102

36,593

132,627

Disposals

-4,635

-1,908

-1,255

-620

-8,418

Cost Cumulative depreciation and impairment Net carrying amount Changes in 2007

Depreciation

-14,976

-29,201

-18,807

-14

-62,998

Revaluation

-

438

139

-

577

Impairment

-

-

-

-

-

Changes in group of consolidated companies

28,542

6,039

1,990

-

36,571

Currency translation

-1,930

-1,566

-519

-814

-4,829

Other changes Net carrying value 12/31/2007

-3,258

16,230

2,950

-28,346

-12,424

229,862

150,199

64,997

40,979

486,037

445,020

578,790

273,316

41,141

1,338,267

-215,158

-428,591

-208,319

-162

-852,230

229,862

150,199

64,997

40,979

486,037

25,674

35,186

43,175

52,520

156,555

1/1/2008 Cost Cumulative depreciation and impairment Net carrying amount Changes in 2008 Additions Disposals Depreciation

-954

-2,393

-1,660

-1,095

-6,102

-14,253

-33,752

-21,428

-8

-69,441

Revaluation

-

-

-

-

-

Impairment

-4,885

-19,093

-3,186

-1,989

-29,153

companies

11,087

6,017

2,578

32

19,714

Currency translation

-3,428

-499

-2,104

-52

-6,083

5,285

28,764

3,283

-41,137

-3,805

248,388

164,429

85,655

49,250

547,722

Changes in group of consolidated

Other changes Net carrying amount 12/31/2008 12/31/2008 Cost Cumulative depreciation and impairment Net carrying amount

128 GEA Group Annual Report 2008

485,303

641,434

301,354

51,389

1,479,480

-236,915

-477,005

-215,699

-2,139

-931,758

248,388

164,429

85,655

49,250

547,722

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

The impairments of K EUR 29,153 relate to the tangible fi xed assets of Ruhr-Zink GmbH. This amount was written down to its estimated net disposal value as a result of the decision to close its operations. The revaluations in the previous year relate primarily to a production facility in South Africa, which had been written down in several steps in the past due to its underutilization. The reason for these write-downs ceased to apply due to the higher level of order intake. The other changes mainly relate to the re-categorization of items from plant under construction to property, plant and equipment and intangible assets. Property, plant and equipment are depreciated on a straight-line basis using the relevant residual values and the following useful lives: Useful life in years Buildings and parts of buildings

2 to 50

Plant and equipment

2 to 30

Office and plant equipment

3 to 40

The residual values and useful lives are reviewed at each balance sheet date and adjusted as required. Property, plant and equipment contains land and buildings, plant and equipment, and office furniture and equipment from finance leases:

(K EUR)

2008

2007

Historical costs: capitalized items (finance leases)

31,033

29,419

Cumulative depreciation and impairment

12,608

8,753

Net carrying amount

18,425

20,666

The rise in historical costs compared with the previous year mainly results from the acquisition of leases in connection with one corporate acquisition. Of the net carrying amount for leased property, plant, and equipment, K EUR 17,475 relates to buildings (previous year: K EUR 18,856). The lease contracts for the buildings extend beyond 2020 for the greater part of the carrying amount. None of the leases includes either lease extension options or lease price adjustment clauses. However, the option to acquire the leased asset exists in all cases. The corresponding lease liabilities are explained in the section on finance liabilities (please refer to Section 7.4).

GEA Group Annual Report 2008 129

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

The carrying amount of property, plant and equipment used to serve as collateral for credit lines amounted to K EUR 1,721 as of the balance sheet date (previous year: K EUR 990). Most of these assets consist of land. In 2008, K EUR 2,174 (previous year: K EUR 1,578) was recognized as own work capitalized under property, plant and equipment.

6.2 Investment property The following table displays the changes in investment property:

(K EUR)

Land

Buildings

Total

1/1/2007 Cost

27,989

59,530

87,519

Cumulative depreciation and impairment

-3,853

-26,797

-30,650

Net carrying amount

24,136

32,733

56,869

Changes in 2007 Additions

960

789

1,749

Disposals

-3,060

-4,090

-7,150

-

-2,909

-2,909

-1,758

-5,491

-7,249

Depreciation Impairment Other changes

-

3,356

3,356

20,278

24,388

44,666

25,889

55,688

81,577

Cumulative depreciation and impairment

-5,611

-31,300

-36,911

Net carrying amount

20,278

24,388

44,666

-14,275

-12,898

-27,173

Depreciation

-

-2,705

-2,705

Impairment

-

-355

-355

6,003

8,430

14,433

Net carrying value 12/31/2007 1/1/2008 Cost

Changes in 2008 Disposals

Net carrying amount 12/31/2008 12/31/2008 Cost Cumulative depreciation and impairment Net carrying amount

130 GEA Group Annual Report 2008

9,856

23,697

33,553

-3,853

-15,267

-19,120

6,003

8,430

14,433

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

The reason for the decline in investment property is the disposal of an item of real estate by GEA Real Estate GmbH in Frankfurt am Main. The impairment of K EUR 7,249 in the previous year relates to various buildings and pieces of land, and arose from the rental condition of the buildings and the general trend of rental prices at these locations. The impairment was reported in the cost of sales. The other changes of K EUR 3,356 in the previous year related to reclassifications of assets under construction, which were reported under property, plant and equipment. The fair value of investment property amounts to K EUR 15,050 (previous year: K EUR 55,458). Fair values were calculated on the basis of comparable prices, which in turn were based on surveys conducted within the Group. The following amounts have been reported in the income statement in connection with investment property: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Rental income

23,156

28,977

Operating expenses

27,381

31,583

27,381

31,583

-4,225

-2,606

(K EUR)

of which property used to generate rental income Total

The rental income from GEA Real Estate GmbH was reported under revenue.

GEA Group Annual Report 2008 131

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6.3 Intangible assets and goodwill The table below shows the changes in the carrying values of intangible assets:

(K EUR)

Goodwill

Market related intangible assets

Customer related intangible assets

Contractbased intangible assets

Technology based intangible assets

Total

1,250,763

10,672

2,442

16,817

75,024

1,355,718

1/1/2007 Cost Cumulative amortization and impairment

-

-113

-174

-14,776

-48,612

-63,675

1,250,763

10,559

2,268

2,041

26,412

1,292,043

Additions

10,139

-

-

11,024

10,979

32,142

Disposals

-224

-

-

-94

-342

-660

-

-1,092

-1,081

-1,618

-8,992

-12,783

companies

44,581

14,230

12,945

2,730

13,793

88,279

Currency translation

-5,609

-101

-657

150

69

-6,148

Net carrying amount Changes in 2007

Amortization Changes in group of consolidated

Other changes

-

-

-

2,646

-

2,646

1,299,650

23,596

13,475

16,879

41,919

1,395,519

1,299,650

24,801

14,730

33,217

-89,290

1,461,688

-

-1,205

-1,255

-16,338

-47,371

-66,169

1,299,650

23,596

13,475

16,879

41,919

1,395,519

Additions

3,243

54

102

4,992

11,869

20,260

Disposals

-1,631

-

-

-37

-240

-1,908

Amortization

-

-392

-2,311

-2,874

-11,801

-17,378

Impairment

-

-

-

-

-607

-607

companies

36,169

22,294

13,004

-82

16,458

87,843

Currency translation

-5,598

-3,841

-560

-826

-1,249

-12,074

-

-

-

1,579

2,949

4,528

1,331,833

41,711

23,710

19,631

59,298

1,476,183

1,331,833

42,936

27,761

38,107

118,250

1,558,887

-

-1,225

-4,051

-18,476

-58,952

-82,704

1,331,833

41,711

23,710

19,631

59,298

1,476,183

Net carrying value 12/31/2007 1/1/2008 Cost Cumulative amortization and impairment Net carrying amount Changes in 2008

Changes in group of consolidated

Other changes Net carrying amount 12/31/2008 12/31/2008 Cost Cumulative amortization and impairment Net carrying amount

132 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

Goodwill Goodwill is allocated to the divisions that constitute cash-generating units. The recoverable amount of a division is determined by calculating the value in use under the ”discounted cash flow” method. The cash flows used in previous years were the pre-tax operating cash flows from the consolidated mid-term (three-year) planning prepared on a “bottom up” basis and approved by the Executive Board. Since the mid-term planning was largely prepared in the summer and consequently before the outbreak of the global fi nancial and economic crisis, various development scenarios for the individual divisions were formulated in the fourth quarter of 2008 for the years 2009 to 2011. The related potential commercial effects were then calculated from simulations. The cash flows derived from the original medium-term planning were adjusted on the basis of these simulations, and depending on the event probabilities of the scenarios. As in previous years, cash flows equivalent to the average of the three planning years taken into account were used for the subsequent period, and extrapolated using a uniform growth rate of one percent. A uniform interest rate is used to discount the cash flows. The calculation of this rate is based on the assumption of a debt-free enterprise. The interest rate takes account of the GEA Group’s beta factor and the anticipated rate of taxation, allowing for existing tax loss carryforwards. The cash flows have been discounted using a pre-tax interest rate of 11.57 percent (previous year: 14.52 percent). The planning is based on specific assumptions regarding changes in the global economy, the price of raw materials and exchange rates. The weighted average growth rates used are essentially consistent with forecasts made in industrial reports. The discount rate used is a pre-tax rate, and reflects the specific risks of the divisions. All of the GEA Group’s divisions reported goodwill. The carrying amount of goodwill at December 31, 2008 amounted to K EUR 1,331,833 (previous year: K EUR 1,299,650). The impairment test conducted in the fourth quarter confi rmed the value-retention of the present goodwill.

GEA Group Annual Report 2008 133

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

Goodwill is allocated as follows among the divisions: 12/31/2008 Division Process Engineering

12/31/2007

Carrying amount of

Share of total

Carrying amount of

Share of total

allocated goodwill

goodwill

allocated goodwill

goodwill

317.278 K EUR

23,8 %

335.843 K EUR

25,8 %

Mechanical Separation

214.961 K EUR

16,1 %

215.020 K EUR

16,5 %

Process Equipment

193.376 K EUR

14,5 %

181.818 K EUR

14,0 %

Refrigeration

189.886 K EUR

14,3 %

176.254 K EUR

13,6 %

Thermal engineering

147.338 K EUR

11,1 %

144.122 K EUR

11,1 %

Others Total

268.994 K EUR

20,2 %

246.593 K EUR

19,0 %

1.331.833 K EUR

100,0 %

1.299.650 K EUR

100,0 %

In the case of one division (previous year: two divisions), the recoverable amount is less than 10 percent above the carrying amount of the division. If the discount rate used were increased by 10 percent, a total goodwill impairment of K EUR 14,539 (previous year: K EUR 15,917) would be required for this division (previous year: these divisions). If the discount rate used were increased by 20 percent, a total goodwill impairment of K EUR 34,382 would be required (previous year: K EUR 84,293). In the case of this division (previous year: these divisions), impairment of K EUR 8,738 (previous year: K EUR 2,737) would result if the cash flows expected for the period according to the three-year detailed planning horizon were 10 percent lower. Given cash flows 20 percent lower the impairment would amount to K EUR 27,178 (previous year: K EUR 41,843). The new Pharma Systems Division was split off from the Process Technology Division as of January 1, 2008. The goodwill was allocated according to the fair values of the divisions. The carrying amount of the goodwill has changed as follows: Energy and Farm Technology

Process Technology

Total

379,871

870,892

1,250,763

Additions

11,589

43,131

54,720

Disposals

-

-224

-224

(K EUR) Carrying amount at 12/31/2006

-745

-4,864

-5,609

390,715

908,935

1,299,650

Additions

10,782

28,630

39,412

Disposals

-175

-1,456

-1,631

Exchange differences Carrying amount at 12/31/2007

Exchange differences Carrying amount at 12/31/2006

134 GEA Group Annual Report 2008

-725

-4,873

-5,598

400,597

931,236

1,331,833

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

The reason for the additions of K EUR 39,412 include, besides the seven corporate acquisitions made during the reporting year, purchase price adaptations for corporate acquisitions made in previous year, as well as the purchase of outstanding minority interests. The main reason for the goodwill disposal of K EUR 1,631 is a purchase price reimbursement of K EUR 1,100.

Purchased intangible assets The increase in purchased intangible assets is largely attributable to the capitalization of intangible assets in connection with acquisitions. These assets essentially comprise technologies, brand names and customer bases. Because their useful life cannot be determined, assets amounting to K EUR 36,210 (previous year: K EUR 19,464) are tested for impairment at least once a year instead of being amortized. These assets are brand and product names of acquired companies. These company and product names are established brands in their respective industrial sectors, and will continue to be used indefi nitely after the company has been acquired. The impairment tests confi rmed that the brand names had retained their value. The carrying amounts of intangible assets with unlimited useful lives is split as follows: 12/31/2008

12/31/2007 Share of total

Division

Share of total

Carrying amount

carrying amount

Carrying amount

Carrying amount

16,200 K EUR

44.7 %

5,272 K EUR

27.1 %

8,268 K EUR

22.8 %

8,059 K EUR

41.4 %

Air Treatment

6,433 K EUR

17.8 %

6,133 K EUR

31.5 %

Thermal Engineering

2,963 K EUR

8.2 %

-

-

Refrigeration Process Engineering

Farm Systems Total

2,346 K EUR

6.5 %

-

-

36,210 K EUR

100.0 %

19,464 K EUR

100.0 %

The intangible assets with limited useful lives are amortized on a straight-line basis using the following useful lives: Useful life in years Market related intangible assets

3 to 20

Customer related intangible assets

1 to 10

Contract based intangible assets

1 to 18

Technology based intangible assets

1 to 25

The amortization of intangible assets of K EUR 17,378 in 2008 (previous year: K EUR 12,783) is shown under cost of sales.

GEA Group Annual Report 2008 135

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6.4 Investments in enterprises reported at equity Investments in enterprises reported at equity are shown at a carrying amount of EUR 11,983 million (previous year: EUR 14,585 million) at December 31, 2008. The following list summarizes the key figures for investment reported at equity as of December 31, 2008. The relevant figures are stated at 100 percent and are based on the most recently available annual financial statements in each case.

(K EUR) Revenue Net income/loss

(K EUR) Assets Liabilities

1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

80,107

61,528

2,454

-157

12/31/2008

12/31/2007

115,767

112,426

91,138

88,236

Assets and net income that can be attributed to GEA Group are immaterial compared to GEA Group’s total assets and net income. As of December 31, 2008, the joint ventures have partly assets, liabilities, revenue and net income:

(K EUR)

2008

2007

5,608

5,074

18,324

12,286

Assets: Non-current assets Current assets Liabilities: Non-current liabilities Current liabilities Revenue Net income/loss

136 GEA Group Annual Report 2008

1,592

458

15,679

11,996

23,474

11,718

1,058

385

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6.5 Other financial assets Other financial assets are composed as follows:

(K EUR)

12/31/2008

12/31/2007

46,862

31,451

138

481

Financial derivatives

3,617

2,404

Sundry financial assets

9,394

8,901

60,011

43,237

513

503

Investments in non-consolidated subsidiaries and other equity investments Other securities

Other non-current financial assets Other securities

12,770

14,092

Sundry financial assets

152,722

161,111

Other current financial assets

166,005

175,706

Total

226,016

218,943

Derivative financial instruments

Other securities Other securities are broken down into current and non-current portions as follows:

(K EUR)

12/31/2008

12/31/2007

Carried on the balance sheet at fair value

138

481

Other non-current securities

138

481

Carried on the balance sheet at fair value

381

447

Carried at amortized cost under the effective interest method

132

56

Other current securities

513

503

Total

651

984

The current and non-current shareholdings in securities carried at fair value with no impact on income are categorized as follows as equity and debt instruments:

(K EUR)

12/31/2008

12/31/2007

Equity instruments

138

115

Debt instruments

381

813

Total securities carried on the balance sheet at fair value

519

928

GEA Group Annual Report 2008 137

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

The equity instruments listed in the above table represent investments in listed shares, which should provide the GEA Group with both dividend income and capital gains. The fair value of these securities was based on published market prices in all cases. The average rate of interest on the debt instruments was 3.1 percent (previous year: 3.0 percent).

Derivative financial instruments Derivative financial instruments are presented under Notes 7.8

Sundry financial assets Sundry financial assets with a nominal value of K EUR 162,116 were recognized as of the balance sheet date (previous year: K EUR 170,012). Assets are classified as current or noncurrent as follows:

(K EUR)

12/31/2008

12/31/2007

Other receivables from non-consolidated subsidiaries

373

315

Other receivables from equity investments

970

998

Receivables from tax authorities Other sundry financial assets Other non-current financial assets Other receivables from non-consolidated subsidiaries

Other sundry financial assets

194 7,394

9,394

8,901

19,948

20,018

Other receivables from equity investments Receivables from tax authorities

201 7,850

4,236

223

64,625

59,649

63,913

81,221

Other current financial assets

152,722

161,111

Total

162,116

170,012

The receivables from tax authorities consist primarily of VAT rebates. Other sundry financial assets include prepaid expenses and accrued income totaling K EUR 38,939 (previous year: K EUR 38,345).

138 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

The term structure of other sundry fi nancial assets is as follows:

(K EUR)

12/31/2008

12/31/2007

75,336

93,046

3,573

4,431

Carrying amount

71,763

88,615

of which neither impaired nor overdue at balance sheet date

71,031

87,588

732

1,027

203

275

Carrying amount before impairment Impairment

of which not impaired but overdue at balance sheet date Overdue periods in time bands:

less than 30 days between 31 and 60 days

-

-

between 61 and 90 days

4

-

between 91 and 180 days between 181 and 360 days over 360 days

-

43

35

-

490

709

12/31/2008

12/31/2007

6.6 Inventories The inventories break down as follows:

(K EUR) Materials and supplies

228,843

213,145

Work in progress

167,210

158,575

Assets under construction for third parties Finished goods and merchandise Advances paid Total

28,136

42,640

256,912

206,689

36,697

53,642

717,798

674,691

During the year under review, impairments of K EUR 11,232 (previous year: K EUR 10,250) were applied to inventories. Owing to price rises in the market, impairments applied to inventories in the previous year of K EUR 2,006 were reversed (previous year: K EUR 202).

GEA Group Annual Report 2008 139

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6.7 Trade receivables Trade receivables are composed as follows:

(K EUR) Trade receivables of which from non-consolidated companies of which from equity investments Gross amount due from customers for contract work Total

12/31/2008

12/31/2007

1,019,287

923,874

29,842

33,078

3,005

886

330,961

317,667

1,350,248

1,241,541

Trade receivables include receivables of K EUR 16,412 (previous year: K EUR 21,629) that will not be realized until one year after the balance sheet date. Total specific reserves for bad debts on trade receivables amounted to K EUR 59,920 (previous year: K EUR 61,964). A total of K EUR 5,249 (previous year: K EUR 1,761) of the trade receivables were assigned in global form as a security for bank borrowings. The average credit period and the average volumes of receivables outstanding are in line with the general market. The due structure of trade receivables – with the exception from non-consolidated subsidiaries and equity investment – is presented in the following table:

(K EUR) Carrying amount before impairment Impairment

12/31/2008

12/31/2007

1,046,360

951,874

59,920

61,964

Carrying amount

986,440

889,910

of which neither impaired nor overdue at balance sheet date

758,851

673,921

of which not impaired but overdue at balance sheet date Overdue periods in time bands:

140 GEA Group Annual Report 2008

227,589

215,989

less than 30 days

89,744

88,652

between 31 and 60 days

50,123

34,383

between 61 and 90 days

17,881

17,923

between 91 and 180 days

27,885

19,774

between 181 and 360 days

19,321

20,112

over 360 days

22,635

35,145

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

Construction contracts Construction contracts with asset- and liability-side balances due from customers are composed as follows:

(K EUR)

12/31/2008

12/31/2007

2,204,371

2,172,651

Plus PoC gains or losses

388,536

312,852

Minus anticipated losses

6,541

13,051

2,255,405

2,154,785

330,961

317,667

-302,612

-279,296

28,349

38,371

Capitalized cost of sales arising from construction contracts

Minus progress-billing amounts Construction contracts with asset-side balance due from customers (included in trade receivables) Construction contracts with liability-side balance due from customers (included in other liabilities) Total

The liability-side balance on construction contracts is almost exclusively attributable to progress-billing amounts in excess of the capitalized cost of sales. As of December 31, 2008, advances of K EUR 46,938 had been received from construction contracts (previous year: K EUR 48,413). Revenue of K EUR 2,762,952 was generated from construction contracts in 2008 (previous year: K EUR 2,787,251).

6.8 Income tax receivables Income tax receivables at the balance sheet date amounted to K EUR 10,672 (previous year: K EUR 11,186). All income tax assets fall due within one year.

GEA Group Annual Report 2008 141

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6.9 Cash and cash equivalents Holdings of cash and cash equivalents are as follows as of the balance sheet date:

(K EUR) Unrestricted cash and cash equivalents Restricted cash and cash equivalents Total

12/31/2008

12/31/2007

431,734

275,825

7,820

3,337

439,554

279,162

Cash and cash equivalents comprise cash funds and overnight deposits. The restricted cash and cash equivalents are fi xed-term deposits and bank balances. The interest rate of current bank deposits in the Eurozone ranged between 1.6 and 4.3 percent (previous year: between 3.5 and 4.3 percent), as is usual for the market. The average rate of interest as of the year end amounted to 1.9 percent.

142 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Assets

6.10 Assets held for sale and liabilities related to assets held for sale Other assets held for sale relate mainly to various pieces of land and buildings no longer used for operating purposes. They are due to be sold within one year. Following writedowns applied to the net disposal prices of land and buildings in the previous year of K EUR 4,032, no write-downs were applied in 2008. This write-down was included in the net income from continuing operations. Furthermore, assets of MG Rohstoff handel GmbH are reported as “held for sale”. The company’s liabilities are correspondingly reported as “liabilities related to assets held for sale”.

GEA Group Annual Report 2008 143

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7. Notes to the Consolidated Balance Sheet: Equity and Liabilities 7.1 Equity Issued capital The subscribed capital of GEA Group Aktiengesellschaft remained unchanged at EUR 496,890,369 as of December 31, 2008. The issued share-base consists of 183,807,845 no-par value bearer shares (previous year: 183,982,845). The shares are fully paid in. GEA Group Aktiengesellschaft was authorized by a resolution adopted by the Annual General Meeting on April 23, 2008 to repurchase its own shares amounting to up to 10 percent of its share capital until October 22, 2009 for specific purposes, pursuant to § 71 paragraph 1 No. 8 of the German Stock Corporation Act (AktG). Following approval by the Supervisory Board, the company acquired 175,000 of its own shares in October 2008 for cancellation, reflecting issued share capital of K EUR 473 (0.1 percent). Treasury shares acquired during the year under review with the purchase costs of K EUR 2,124 were withdrawn in November 2008 without reduction of the capital stock.

Authorized capital Resolution of Annual General Meeting

Expiring on

Amount (K EUR)

Authorized capital I

April 30, 2007

April 29, 2012

up to 77,000

Authorized capital II

June 21, 2004

June 20, 2009

up to 48,000

Authorized capital III

June 21, 2004

June 20, 2009

Total

up to 123,000 up to 248,000

Authorized Capital I allows the Executive Board, with Supervisory Board approval, to increase the issued capital through the issue, on one or more occasions, of new no-par value shares against cash contributions and, pursuant to § 5 Paragraph 4 of the company’s articles of association, in doing so to determine a starting date for profit participation other than that stipulated by law. The Executive Board is authorized, with Supervisory Board approval, to exclude shareholders’ subscription rights for residual amounts. The Executive Board is also authorized, with the approval of the Supervisory Board, to determine further details relating to the capital increase from Authorized Capital I, as well as the terms of the share issue. Authorized capital II allows the Executive Board, with Supervisory Board approval, to increase the issued capital through the issue, on one or more occasions, of new no-par value shares against cash contributions and, pursuant to § 5 Paragraph 4 of the company’s articles of association, in doing so determine a starting date for profit participation other than that stipulated by law. The Executive Board is authorized, with Supervisory Board approval, to exclude shareholders’ subscription rights for residual amounts. Furthermore, the Executive Board is authorized, with Supervisory Board approval, to exclude subscription rights unless the issue price

144 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

of the new shares is substantially below the market price of shares in the company issued under the same terms and conditions at the time the issue price was determined. This exclusion of subscription rights pursuant to §§ 203 Paragraph 1, 186 Paragraph 3 Clause 4 of the German Stock Corporation Act (AktG) is limited, however, to a total of 10 percent of the share capital of the company registered in the commercial register when Authorized Capital II is utilized for the fi rst time, taking into account treasury shares that have been acquired on the basis of a corresponding authorization by the Annual General Meeting up to the time of the issue of the new shares, and which have been sold during the duration of Authorized capital II pursuant to §§ 71 Paragraph 1 No. 8, 186 Paragraph 3 Clause 4 of the German Stock Corporation Act (AktG). Authorized capital III allows the Executive Board, with Supervisory Board approval, to increase the issued capital through the issue, on one or more occasions, of new no-par value shares against cash contributions and, pursuant to § 5 Paragraph 4 of the company’s articles of association, in doing so determine a starting date for profit participation other than that stipulated by law. Furthermore, the Executive Board is authorized, with Supervisory Board approval, to decide on the exclusion of subscription rights and to determine the further details of the capital increase and the conditions governing the issuance of shares.

(K EUR) Option and convertible bonds

12/31/2008

12/31/2007

48,573

48,573

3,211

3,211

Right to compensation of shareholders of the former GEA Aktiengesellschaft pursuant to § 305 of the German Stock Corporation Act (AktG) Convertible participatory capital Total

1

1

51,785

51,785

Conditional capital By resolution of the Annual General Meeting of April 30, 2007, the conditional capital was increased by a total of K EUR 48,573, divided into up to 19,000,000 bearer shares. The conditional capital increase will be performed only to the extent that the owners of option or conversion rights arising from option or convertible bonds, which the company or a subordinated Group company issued or guaranteed on the basis of the authorization of the Executive Board by the Annual General Meeting resolution of April 30, 2007, utilize these option or conversion rights. As in the previous year, no option or convertible bonds were issued in fiscal 2008. The conditional capital is increased by a further K EUR 3,211, split into 1,188,791 bearer shares. The conditional capital increase is to service a settlement in the company’s shares to minority shareholders of the former GEA Aktiengesellschaft, Bochum, pursuant to § 5 of the control and profit transfer agreement of the former Metallgesellschaft AG with the former GEA Aktiengesellschaft of June 29, 1999. The conditional capital increase will only be carried out to the extent that the external shareholders of the former GEA Aktiengesellschaft existing prior to the squeeze-out utilize any right they may have to compensation once the court has given its final ruling on the appeal. An appeal still pending before the district court in Dortmund is to rule on the appropriateness of the cash payment and compensation specified in the control and profit transfer agreement.

GEA Group Annual Report 2008 145

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Additional paid-in capital The additional paid-in capital has not changed since the previous year. It amounts to K EUR 1,079,610

Retained earnings The changes in retained earnings are reported in the statement of changes in equity. The single-entity financial statements of GEA Group Aktiengesellschaft prepared according to the German Commercial Code (HGB) provide the basis for the distribution of earnings.

Cumulative other comprehensive income/loss Cumulative other comprehensive income/loss includes the gains or losses on fi nancial assets carried on the balance sheet at fair value, the effective portion of the change in fair value of derivatives designated as cash-flow hedges, and the gains or losses on exchange differences arising from currency translation of foreign subsidiaries. The following table presents the changes in accumulated other comprehensive income/ loss in 2008:

(K EUR) Accumulated other comprehensive income/loss at the beginning of the year

12/31/2008

12/31/2007

-35,932

327

Change in unrealized gains/losses arising from securities recognized at fair value with no impact on income Realized gains from securities recognized at fair value with no impact on income Tax effect arising from securities recognized at fair value with no impact on income Total changes from securities recognized at fair value with no impact on income Change in unrealized gains on derivative instruments ("cash flow hedges") Realized gains from derivative instruments Tax effect on derivative instruments Total change arising from hedging transactions Total change arising from currency translation Accumulated other comprehensive income/loss at the end of the financial year

-43

-5

-

-264

-9

91

-52

-178

-14,311

15,085

-9,897

-15,826

6,387

799

-17,821

58

-920

-36,139

-54,725

-35,932

Minority interests Minority interests in GEA Group companies amount to K EUR 3,319 (previous year: K EUR 3,508).

146 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7.2 Provisions The composition of and changes in provisions in 2008 are presented in the following table:

(K EUR) Balance at 1/1/2008 of which non-current of which current Additions

Guarantees, warranties

Litigation risks

Follow-up costs

Environmental protection, mining

Other provisions

Total

537,334

63,337

48,929

47,428

141,310

838,338

85,784

54,355

2,397

45,070

43,962

231,568

451,550

8,982

46,532

2,358

97,348

606,770

235,658

3,539

39,048

10,595

91,904

380,744

of which reported in result from discontinued operations Used Reversed

187,680

-

-

8,262

23,149

219,091

-217,227

-9,268

-24,525

-3,394

-59,420

-313,834

-35,657

-24,852

-9,155

-842

-16,944

-87,450

-17,700

-23,400

-

-

-1,126

-42,226

3,362

313

433

-

1,436

5,544

740

708

-

1,247

2,688

5,383

of which reported in result from discontinued operations Changes in the scope of consolidation Accrued interest of which reported in result from discontinued operations

-

-

-

-

1,722

1,722

-750

-153

1,335

1

-2,310

-1,877

Balance at 12/31/2008

523,460

33,624

56,065

55,035

158,664

826,848

of which non-current

59,597

24,815

7,016

44,121

45,566

181,115

463,863

8,809

49,049

10,914

113,098

645,733

Exchange differences

of which current

Provisions for guarantees and warranties The provisions for guarantees contain, firstly, provisions for indemnities and warranties/ guarantees connected with the sale of corporate activities. The provisions for guarantees also comprise warranties relating to products and plant. The guarantees and warranties on which they are based are usually granted, as is customary in the industry, in connection with certain performance criteria relating to plant, equipment, or products (e.g. output volume guarantee, quality of product manufactured). Warranties generally run for between one and two years from the time when delivery of the products, plant, or equipment is accepted. In addition to warranties explicitly agreed by contract, many countries also recognize product liability arrangements, which in some cases may stipulate that the

GEA Group Annual Report 2008 147

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

manufacturer is liable beyond the contractually agreed life of the warranty. In some cases there are rights of recourse in the form of insurance reimbursements or subcontractors’ guarantees. The level of provisions is based on the management’s best estimate.

Litigation risks Provisions for risks arising from impending or pending litigation against GEA Group companies were accrued if the assessment is made that there is likely to be an unfavorable outcome to the case. Assessments by the lawyers and legal experts representing the company were used to determine the likelihood of such litigation. The probable damages or sanctions have been recognized as a liability.

Follow-up costs This item comprises the cost of residual work (e.g. repairs) that is incurred after the contract has already been invoiced, and the gains or losses on the contract have been realized. The amount of the anticipated cost is recognized.

Environmental, mining This item essentially comprises provisions for the clean-up of pit water from past mining activities, the clean-up of other instances of groundwater contamination, and the clean-up of contamination resulting from zinc production. Because of a lack of legal precedents, the law is unclear as to the amount and duration of the company’s obligation to clean up pit water. The amount of this obligation will be influenced by the attempts to clarify the legal position on this issue in collaboration with the mining authorities and the federal state of North Rhine-Westphalia. The level of provisions is based on the best possible estimate. The same applies to the cleanup of contamination related to zinc production.

148 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Other provisions Other provisions contain, among other things, provisions for impending losses of K EUR 29,577 (previous year: K EUR 31,055), restructuring provisions of K EUR 5,016 (previous year: K EUR 4,659), provisions for repayments of investment subsidies of K EUR 27,193 (previous year: K EUR 25,107), and provisions for non-consolidated companies of K EUR 10,425 (previous year: K EUR 11,693). The provisions for impending losses of K EUR 29,577 mainly relate to leases (previous year: K EUR 31,055).

7.3 Obligations to employees The table below provides a breakdown of obligations to employees:

(K EUR) Obligations under pension plans of which defined benefit pension plans of which defined contribution pension plans

12/31/2008

12/31/2007

441,579

450,162

440,642

449,427

937

735

16,038

16,648

Other pension-related obligations

14,128

11,411

Pre-retirement part-time employment

24,875

25,953

Cost of long-service awards

7,134

5,512

Sundry obligations to employees

2,207

3,684

505,961

513,370

14,227

7,872

Liabilities from supplementary healthcare benefits

Non-current obligations to employees Redundancy and severance pay Outstanding vacation, flexitime/overtime credits

50,355

47,876

Bonuses

76,855

61,753

57,598

50,505

Current obligations to employees

Sundry obligations to employees

199,035

168,006

Total obligations to employees

704,996

681,376

7.3.1 Defined benefit pension plans Pension obligations and funded status Pension benefits are granted to a large number of employees at GEA. The benefits in Germany usually consist of pension entitlements. Employees generally receive fi xed pension amounts per year of service. Several subsidiaries outside Germany operate country-specific pension plans, all of which are funded by pension funds. Benefit obligations in Germany are primarily unfunded.

GEA Group Annual Report 2008 149

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

As in the previous year, Prof. Dr. Klaus Heubeck’s 2005G mortality tables have been used as the basis for the measurement of all German pension plans as of December 31, 2008. All German pension plans have been valued as of December 31, 2008. Most foreign pension plans were also measured as of December 31, 2008. The changes in the present value of the defined benefit obligation and the plan assets, and the reconciliation of the funded status are as follows:

(K EUR)

12/31/2008 German Foreign

12/31/2007 German Foreign

444,360

484,931

Present value of the defined benefit obligation at the start of the financial year Reclassified as "held for sale"

106,614

101,790

-1,486

-

-

-

Service cost

3,684

1,891

5,426

2,684

Interest cost

22,967

5,158

21,645

5,818

-

653

-

724

Employee contributions Curtailments Actuarial gain Past service cost

-

-702

-

-118

-32,282

-3,703

-38,659

-12,338

-

2,300

-

-

1,223

-

426

-

Changes in group of consolidated companies

-

-6,766

-409

20,276

Exchange differences

-

-69

-

-6,168

-29,219

-5,717

-29,000

-6,054

409,247

99,659

444,360

106,614

15,594

84,707

14,734

72,745

Transfer of assets

Benefits paid Present value of defined benefit obligation at the end of the financial year Fair value of plan assets at the start of the financial year Expected return on plan assets

749

-4,854

690

5,708

Actuarial loss

-18

-21,233

-164

-5,328

Employer contributions

647

5,342

1,390

5,107

Employee contributions

-

653

-

724

Curtailments

-

-

-

-74

Changes in group of consolidated companies

-

-8,192

-

15,731

Exchange differences

-

150

-

-5,058

Benefits paid Fair value of plan assets at the end of the financial year

-820

-4,642

-1,056

-4,848

16,152

61,642

15,594

84,707

393,095

38,017

428,766

21,907

27,510

-17,752

-1,892

-125

148

-

-

-

Reconciliation of funded status: Funded status Unrecognized actuarial gain (+) / loss (-) Reclassified as "held for sale" Unrecognized past service cost Net amount recognized

150 GEA Group Annual Report 2008

-

-2,245

-

-

420,753

18,020

426,874

21,782

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

The table below shows the present value of the defined benefit obligation broken down into funded and unfunded plans: 12/31/2008

12/31/2007

(K EUR)

German

Foreign

German

Foreign

Present value of the defined benefit obligation for funded plans

107,531

90,868

108,449

101,658

Fair value of plan assets

16,152

61,642

15,594

84,707

Funded status

91,379

29,226

92,855

16,951

Unrecognized actuarial loss

-2,252

-17,021

-5,619

-244

-

-1,290

-

-

Unrecognized past service cost Net amount recognized for funded plans Present value of the defined benefit obligation for unfunded plans Unrecognized actuarial gain (+) / loss (-) Unrecognized past service cost

89,127

10,915

87,236

16,707

301,716

8,791

335,911

4,956

29,910

-731

3,727

119

-

-955

-

-

Net amount recognized for unfunded plans

331,626

7,105

339,638

5,075

Net amount recognized

420,753

18,020

426,874

21,782

Experience adjustments made to take account of discrepancies between actuarial assumptions and actual trends have the following effects: 12/31/2008 (K EUR)

12/31/2007

12/31/2006

German

Foreign

German

Foreign

German

Foreign

409,247

99,659

444,360

106,614

484,931

101,790

1,286

1,100

4,124

-548

793

-552

16,152

61,642

15,594

84,707

14,734

72,745

-18

-21,233

-164

-5,328

243

239

393,095

38,017

428,766

21,907

470,197

29,045

Present value of the defined benefit obligation of which effect of experience adjustments in fiscal year (loss (+) / gain (-)) Fair value of plan assets of which effect of experience adjustments in the fiscal year (gain (+) / loss (-)) Funded status

GEA Group Annual Report 2008 151

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

The table below shows the changes in the net amount recognized for defined-benefit pension plans in 2008 and 2007: 12/31/2008

12/31/2007

(K EUR)

German

Foreign

German

Foreign

Net amount recognized at the start of the financial year

426,874

21,782

429,715

22,528

Reclassified as "held for sale"

-1,338

-

-

-

Net periodic pension cost

23,040

2,155

26,476

2,132

318

-

459

-

of which reported in net income/loss on discontinued operations Employer contributions Benefits paid Curtailments / settlements Consolidation / transfer of assets / exchange differences Net amount recognized

-647

-5,342

-1,390

-5,107

-28,399

-1,075

-27,944

-1,206

-

-702

-

-

1,223

1,202

17

3,435

420,753

18,020

426,874

21,782

Amounts recognized in the consolidated balance sheet for the pension plans of continuing operations are as follows: 12/31/2008

12/31/2007

(K EUR)

German

Foreign

German

Foreign

Obligations to employees

420,753

19,889

426,874

22,553

-

-1,869

-

-771

420,753

18,020

426,874

21,782

Prepaid expenses Net amount recognized

Of the pension provisions reported as of December 31, 2008, K EUR 35,672 (previous year: K EUR 35,091) are classified as current.

Actuarial parameters Weighted actuarial assumptions used to determine the present value of the defi ned benefit obligation for the principal pension plans were as follows: 12/31/2008 (Percent)

12/31/2007

German

Foreign

German

Foreign

Discount rate

5.85

5.50

5.60

5.30

Rate of salary increase

2.80

2.30

2.80

2.70

Rate of pension increase

2.00

0.70

2.00

1.20

The actuarial assumptions for German pension plans were coordinated with actuarial experts Watson Wyatt Heissmann GmbH, Wiesbaden. The parameters for foreign pension plans were determined with the help of local actuarial experts and in accordance with local conditions.

152 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Plan assets The table below shows the weighted composition of plan assets used to cover the defi ned benefit obligation at the respective balance sheet date: 12/31/2008 (Percent)

12/31/2007

German

Foreign

German

Foreign

Equity instruments

0.9

32.8

1.1

42.6

Debt instruments

30.2

30.2

32.5

24.0

-

1.8

-

5.3

68.8

24.4

66.0

21.7

0.1

10.8

0.4

6.4

100.0

100.0

100.0

100.0

Real estate Insurance Other

As in the previous year, the plan assets of German pension plans were managed by relief funds and an endowment fund, and are mainly invested in fixed-income securities and fi xed-term deposits; only a small proportion is invested in equities. Plan assets held outside Germany are invested country-specifically as shown in the table above. In addition, some of both the German and foreign plan assets are managed by insurance companies in accordance with their specific investment guidelines. The basic objective is that these investments ensure consistent returns and preserve the value of the underlying assets so that current and future pension benefits can be funded. There are no plans at present to change this investment strategy. The fair values and the expected long-term returns on these plan assets are stated in the relevant tables. These returns are essentially based on average historical interest rates and current capital market rates. In 2009, K EUR 82 is expected to be allocated to the plan assets of German pension plans and K EUR 3,603 to foreign plans. The actual return on plan assets in 2008 was K EUR -15,648 (previous year: K EUR 906).

GEA Group Annual Report 2008 153

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Pension expenses The pension expenses included in the income statement are composed as follows:

(K EUR) Service cost minus service cost included in net income/loss from discontinued operations Interest cost

1/1/2008 - 12/31/2008 German Foreign

1/1/2007 - 12/31/2007 German Foreign

3,684

1,891

5,426

2,684

-70

-

-112

-

22,967

5,158

21,645

5,818

minus interest cost included in net income/loss from discontinued operations

-296

-

-339

-

Expected return on plan assets

-749

-4,857

-690

-5,708

3

-

3

-

-

-594

-

-44

-2,861

-96

95

-618

45

-

-11

-

-

56

-

-

22,723

1,558

26,017

2,132

minus income included in net income/loss on discontinued operations Effects of plan compensation Amortization of actuarial gain (-) / loss (+) minus amortization cost included in net income/loss from discontinued operations Amortization of past service cost Net periodic pension cost

The service cost, the effect of plan compensation, amortized actuarial gains and losses, and service cost assigned subsequently on continuing operations are recognized as staff costs under functional costs (cost of sales, selling expenses and administrative expenses). The interest cost and the expected return on plan assets are reported under net interest income/expense.

Actuarial parameters The weighted actuarial assumptions to calculate the net periodic pension costs are as follows:

(Percent)

2008 German

Foreign

2007 German

Foreign

Discount rate

5.60

5.30

4.60

5.20

Rate of salary increase

2.80

2.70

2.50

3.00

Rate of pension increase

2.00

1.20

1.80

2.40

Expected long-term return on plan assets

4.70

6.70

4.50

7.20

154 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Benefits paid in the future The following payments are expected for the next few years from the German and foreign pension plans: 2014(K EUR)

2009

2010

2011

2012

2013

2018

German pension plans

30,404

30,681

31,027

31,151

31,316

157,757

Foreign pension plans

5,268

5,289

5,524

5,811

5,981

30,829

7.3.2 Liabilities from supplementary healthcare benefits Liabilities and funded status In addition to pensions and similar benefits, certain retired employees are provided with post-employment benefits for health insurance premiums. The following information refers to the Group’s liabilities from supplementary healthcare benefits in Germany and abroad.

(K EUR)

12/31/2008 German Foreign

12/31/2007 German Foreign

Change in present value of defined benefit obligation: Present value of the defined benefit obligation at the start of the financial year Reclassified as "held for sale"

15,493

345

17,972

438

-522

-

-

-

Service cost

31

2

48

3

Interest cost

807

14

799

18

Actuarial gain (-) / loss (+)

259

-66

-2,165

34

Changes in the group of consolidated companies

539

-

-

-

Exchange differences

-

28

-

-62

-1,242

-71

-1,161

-86

15,365

252

15,493

345

15,365

252

15,493

345

Unrecognized actuarial gains

230

159

713

97

Reclassified as "held for sale"

32

-

-

-

15,627

411

16,206

442

Benefits paid Present value of defined benefit obligation at the end of the financial year Reconciliation of funded status: Funded status

Net amount recognized

Experience adjustments made to take account of discrepancies between actuarial assumptions and actual trends had the following effects:

(K EUR) Present value of the defined benefit obligation of which effect of experience adjustments in the current year (loss (+) / gain (-))

12/31/2008 German Foreign

12/31/2007 German Foreign

15,365

252

15,493

345

669

-9

-527

7

GEA Group Annual Report 2008 155

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

The table below shows the changes in the net amount of obligations recognized for supplementary health care benefits in 2008 and 2007:

(K EUR) Net amount recognized at the start of the financial year Reclassified as "held for sale" Net periodic pension cost of which included in net income/loss on discontinued operations Benefits paid Changes in the group of consolidated companies / exchange differences Net amount recognized

12/31/2008 German Foreign

12/31/2007 German Foreign

16,206

442

16,497

575

-490

-

-

-

614

12

870

15

27

-

68

-

-1,242

-71

-1,161

-86

539

28

-

-62

15,627

411

16,206

442

Actuarial parameters Weighted actuarial assumptions used to determine the present value of the defined benefit obligation for supplementary health care benefits in Germany were as follows:

(Percent)

12/31/2008 German Foreign

12/31/2007 German Foreign

Discount rate

5.85

5.25

5.60

5.00

Healthcare inflation rate

4.00

10.00

4.00

11.00

The inflation rate relating to the cost of supplementary healthcare benefits in Germany is estimated to be 4 percent for 2009. Based on past experience, this inflation rate is not expected to change in the future. Estimates of the rising cost of medical and dental treatment benefits are taken into account for foreign supplementary health care benefits. The rise in the cost of medical healthcare benefits amounts to 11 percent (previous year: 12.0 percent). They will decrease by 1.0 percentage points every year until 2013. The rise in the cost of dental healthcare benefits amounts to 6.5 percent (previous year: 7.0 percent). It will decrease by 0.5 percentage points every year until 2012. The balance sheet date used to report obligations arising from supplementary healthcare benefits in Germany and abroad is December 31, 2008.

156 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Cost of supplementary health care benefits The net periodic cost of supplementary health care benefits in Germany is broken down as follows:

12/31/2008 German Foreign

(K EUR)

12/31/2007 German Foreign

Service cost

31

2

48

3

minus service cost included in net income/loss from discontinued operations

-6

-

-14

-

Interest cost

807

14

799

18

minus interest cost included in net income/loss on discontinued operations

-21

-

-48

-

-224

-4

24

-6

-

-

-6

-

587

12

803

15

Amortization of actuarial gain (-) / loss (+) minus amortization cost included in net income/loss on discontinued operations Net periodic cost

Service cost and amortized actuarial gains and losses on continuing operations are reported as staff costs under functional costs; the interest cost of pension obligations is shown under interest expense and similar charges.

Actuarial parameters The weighted actuarial assumptions used to calculate the net periodic cost of supplementary health care benefits in Germany were as follows:

12/31/2008 German Foreign

(Percent)

12/31/2007 German Foreign

Discount rate

5.60

5.00

4.60

5.25

Healthcare inflation rate

4.00

11.00

4.00

12.00

Benefits paid in the future Estimates of additional benefits to be paid in the future both in and outside Germany are as follows: 2014 (K EUR)

2009

2010

2011

2012

2013

2018

German pension plans

1,248

1,260

1,258

1,257

1,256

6,098

Foreign pension plans

76

68

56

37

14

-

GEA Group Annual Report 2008 157

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

The following schedule presents the effect of a one percentage point change in the rate of increase of healthcare and life insurance benefits, both in Germany and abroad, on the sum total of service cost plus interest cost, and on the present value of the defined benefit obligation at December 31, 2008:

(K EUR) Impact on the sum total of service costs and interest cost Effect on the present value of the defined benefit obligation

1% increase German Foreign

1% decrease German Foreign

88

1

-74

-1

1,428

8

-1,245

-5

7.3.3 Defined benefit pension plans Individual companies of the GEA Group’s continuing operations – especially in the USA and Scandinavia – offer various post-employment benefits in the form of defined contribution pension plans. The pension obligation of these plans lies not with the GEA Group but with the respective pension provider. Total contributions of K EUR 11,545 (previous year: K EUR 10,289) were paid in 2008. These contributions are recognized under staff costs at the same time as the relevant work is performed. A multi-employer plan for several employers in the Netherlands was recognized as a defined contribution pension plan, since the manager of this plan does not provide sufficient information to the participating companies regarding the level of the obligation and of the plan assets to recognize it as a defined benefit pension plan. Contributions of K EUR 202 (previous year: K EUR 188) were made to the joint pension plan in 2008. Neither overfunding nor underfunding of the plan has any effect on the level of future contribution payments.

158 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7.3.4 Performance Share Plan On July 1, 2006, and on July 1, 2007, GEA Group Aktiengesellschaft launched a new longterm remuneration program entitled GEA Performance Share Plan for executives of the fi rst and second management levels. Executives of the third management level were entitled to participate when the program was reissued on August 1, 2008. The aim of this program is to link remuneration to the company’s long-term performance and to align executives’ interests with those of shareholders. Participants in the plan are allotted a defi ned number of “Performance Shares” at the beginning of the performance period. The number of allotted “Performance Shares” is determined by the participants’ seniority (management level). The performance shares must then be held for three years (performance period). To be eligible to participate in the plan, executives must first invest 20 percent of the amount of the allotted “Performance Shares” in shares of GEA Group Aktiengesellschaft. The performance of GEA Group Aktiengesellschaft shares relative to all other companies in the MDAX index over the three-year performance period is measured in terms of their total shareholder return (TSR). The TSR provides investors with a useful indicator for comparing the performance and appeal of various companies. It measures the total percentage return that an investor earns from a share over a given period. The calculation of the TSR factors in the performance of the share price as well as dividends and any adjustments, such as stock splits. Because it compares performance in relative terms, it eliminates returns that derive from general market volatility, and enables the effects of various profitretention strategies to be compared. The relative performance of GEA Group Aktiengesellschaft shares determines the number of “Performance Shares” ultimately paid out (between 0 percent and 300 percent). The “Performance Shares” are paid out once the three-year performance period has elapsed. The performance of GEA Group Aktiengesellschaft shares relative to the MDAX determines how many “Performance Shares” are paid out. If the performance of the GEA Group Aktiengesellschaft share equals the median in the TSR comparison, 50 percent of the allotted “Performance Shares” are paid out; if it reaches the third quartile, 100 percent of the allotted “Performance Shares” are paid out. If GEA Group Aktiengesellschaft is the best performer compared to all other MDAX companies, 300 percent of the “Performance Shares” are allocated. Other performance figures are interpolated between these values. The total amount paid out to participants corresponds to their allocated number of “Performance Shares” multiplied by the closing share price at the end of the three-year performance period. Once the three-year performance period has elapsed, participants may do as they wish with their GEA Group Aktiengesellschaft shares.

GEA Group Annual Report 2008 159

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

The number of “Performance Shares” changed as follows in 2008:

12/31/2007

Additions

Expired

Paid out proportionally

12/31/2008

2006 tranche

114,580

-

8,500

-

106,080

2007 tranche

80,510

-

9,080

-

71,430

2008 tranche

-

192,660

1,170

-

191,490

195,090

192,660

18,750

-

369,000

Number of shares

Total

The total expense for fiscal 2008 amounts to K EUR 97 (previous year: K EUR 1,531) taking into account the fair value as of December 31, 2008, of EUR 13.50 (previous year: EUR 24.26) for the fi rst tranche, EUR 10.68 (previous year: EUR 21.38) for the second tranche and EUR 7.49 for the third tranche. The fair value of the “Performance Shares” was calculated using a multidimensional Monte Carlo simulation. The obligation arising from the plan amounts to K EUR 1,774 as of December 31, 2008 (previous year: K EUR 1,677).

7.3.5 Sundry obligations to employees Sundry obligations to employees mainly contain provision contributions to professional cooperatives, early retirement provisions, and provisions for framework compensation agreements. The provisions explained under section 7.3.4 also declared under sundry obligations to employees.

160 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7.4 Financial liabilities The table below provides a breakdown of financial liabilities as of December 31, 2008:

(K EUR) Borrower's note loan of which maturing in 5 years or later Liabilities to banks of which maturing in 5 years or later Liabilities under finance leases of which maturing in 5 years or later Liabilities from derivatives of which maturing in 5 years or later

12/31/2008

12/31/2007

199,549

-

-

-

21,280

8,267

3,217

485

13,399

9,542

10,047

6,300

20,850

3,065

1,977

2,699

Non-current financial liabilities

255,078

20,874

Liabilities to banks

279,463

210,128

Liabilities under finance leases Liabilities from derivatives Liabilities to equity investments

1,048

1,454

24,899

6,402

-

914

Current financial liabilities

305,410

218,898

Total financial liabilities

560,488

239,772

In August 2008, GEA Group Aktiengesellschaft placed a borrower’s note loan with a nominal amount of K EUR 200,000. The borrower’s note loan pays interest at 110 basis points over the relevant three-month Euribor. The effective rate of interest for the borrower’s note loan amounted to 5.323 percent as of December 31, 2008. The unleadged borrower’s note loan falls due at the end of it’s term. The term is three years. The difference between the carrying amount and the nominal value of K EUR 451 arises from the transaction costs which were distributed over the term of the note using the effective interest rate method. Security totaling K EUR 4,859 (previous year: K EUR 1,224) has been provided for bank debts.

GEA Group Annual Report 2008 161

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Liabilities to banks Corporate acquisitions are the main reason for the rise in liabilities to banks. The table below provides a breakdown of the maturities of the bank borrowings:

(K EUR)

2008

2007

279,463

210,128

1 - 2 years

4,955

6,590

2 - 3 years

1,134

367

< 1 year

3 - 4 years

1,111

365

4 - 5 years

10,863

460

> 5 years Total

3,217

485

300,743

218,395

The current liabilities mainly relate to the utilization of the syndicated multi-currency revolving credit line of K EUR 500,000. The line was extended until July 2011 in July 2006. The rate of interest on the drawings is based on the money market fi xed interest rate at the time of the drawing. This interest rate corresponds to Euribor for the possible periods of one month to 12 months plus a margin of 40 basis points. The margin rises to 45 basis points when the total drawings amount to K EUR 250,000. As of the balance sheet date, K EUR 200,000 of the syndicated credit line was utilized; its interest payments were fi xed for a total period of three years in 2008 using four interest-rate swaps. The weighted average rate of interest of these swaps amounts to 3.93 percent. This allowed an interest rate of 4.33 percent including the margin to be secured for this drawing for a period of three years. The credit line is not collateralized, as is the case with the borrower’s note loan. Adherence to a particular key indicator relating to the gearing level must nevertheless be reported after the expiry of each quarter. The interest rate on bank borrowings in the Eurozone varied between 3.2 percent and 6.0 percent p.a., depending on their maturity and financing purpose (previous year: between 3.5 percent and 5.5 percent p.a.). There were also materially relevant foreign-currency liabilities denominated in Indian rupees and Chinese renminbi, on which the GEA Group paid these countries‘ normal market interest rates of approximately 16.7 percent p.a. (previous year: 12.5 percent) and 6.2 percent p.a. (previous year: 5.8 percent) respectively. As of December 31, 2008, there were cash credit lines including the borrower‘s note loan of K EUR 200,000 of K EUR 1,160,447 (previous year: K EUR 1,162,037). Of this amount, cash credit lines of K EUR 660,155 (previous year: K EUR 943,619) had not been utilized. In addition, there were guarantee lines of K EUR 2,464,611 (previous year: K EUR 2,479,515) available for performance of contracts, advances and warranty obligations, of which K EUR 1,088,596 (previous year: K EUR 1,165,819) was used.

162 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Lease liabilities The table below provides a breakdown of future payments under finance leases: Present value of (K EUR) < 1 year

Minimum lease payment 12/31/2008 12/31/2007 1,570

Minimum lease payment 12/31/2008 12/31/2007

1,603

1,483

1,533

1 - 2 years

1,744

1,302

1,555

1,189

2 - 3 years

1,037

2,064

850

1,825

3 - 4 years

1,172

999

894

852

4 - 5 years

1,612

799

1,163

628

> 5 years

14,683

8,084

8,502

4,969

Total

21,818

14,851

14,447

10,996

Most leases relate to land and buildings. The present value of minimum lease payments as of December 31, 2008 amounted to K EUR 13,450 (previous year: K EUR 9,670) for leases of land and buildings. The weighted average incremental borrowing rate of interest used in the calculation of the present value of the minimum lease payment was 7 percent (previous year: 5 percent). As the interest rates used in leases are constant, the fair value of lease liabilities may be exposed to interest-rate risk. All leases contain contractually agreed payments. The liabilities under finance leases are effectively secured because the rights to the leased asset revert to the lessor if the terms and conditions of the lease are infringed.

Derivative financial instruments Derivative financial instruments are presented among the notes to the financial statements in Notes 7.8.

GEA Group Annual Report 2008 163

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7.5 Trade payables Trade payables as of December 31, 2008 were as follows:

(K EUR) Trade payables of which owed to non-consolidated subsidiaries of which owed to equity investments

12/31/2008

12/31/2007

723,650

767,505

4,207

4,062

790

735

Trade payables of K EUR 721,470 (previous year: K EUR 765,525) fall due within one year. As in the previous year, no liabilities in 2008 fell due after more than five years. Security of K EUR 159,370 (previous year: K EUR 5,185) has been provided for trade payables.

7.6 Income tax liabilities The income tax liabilities relate to current taxes and amounted to K EUR 55,680 at the balance sheet date (previous year: K EUR 54,653).

164 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7.7 Other liabilities The table below provides a breakdown of other liabilities as of December 31, 2008:

(K EUR) Other non-current liabilities

12/31/2008

12/31/2007

6,771

4,284

Advances received for orders and construction contracts

250,661

227,642

Gross amount due to customers for contract work

302,612

279,296

Other liabilities to non-consolidated subsidiaries

24,273

25,203

Other tax (excluding income taxes)

36,885

35,145

Other liabilities

86,673

93,842

of which relating to social security

16,228

18,077

of which relating to employees

10,620

7,094

Other current liabilities

701,104

661,128

Total other liabilities

707,875

665,412

Security of K EUR 93,290 (previous year: K EUR 20,152) has been provided for prepayments for orders, and of K EUR 22,193 (previous year: K EUR 506) for other liabilities. The gross amount due to customers for contract work amounts to the sum total of contracts whose progress-billing amounts exceed the capitalized cost of sales plus the contract gains and losses recognized. This balance includes an amount of K EUR 11,488 (previous year: K EUR 6,014) that functions like a provision.

GEA Group Annual Report 2008 165

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

7.8 Financial instruments The following tables provide an overview of the composition of fi nancial instruments as of December 31, 2008 according to balance sheet classification and valuation categories. The tables also include financial assets and liabilities, as well as derivatives, which are part of headging relationships that belong to none of the IAS 39 measurement categories.

Measurement as per IAS 39 Measurement

Carrying amount at (K EUR)

Fair value

as per

Fair value at

through P&L through equity

other IFRS

12/31/2008

330,961

1,350,248

10,672

10,672

439,554

439,554

103,765

226,016

Fair value

12/31/2008 Amortized cost

Assets Trade receivables Income tax receivables

1,350,248

Cash and cash equivalents

439,554

Other financial assets

226,016

Derivatives used for hedging

1,019,287

10,672

105,345

8,269

8,118

8,637 8,118

8,118

By IAS 39 measurement categories Loans and receivables

1,077,638

1,077,638

1,077,638

Investments held to maturity

132

132

132

Investments available for sale

47,381

46,862

519

47,356

Financial assets measured at fair value through P&L (derivatives without balance sheet hedging relationship)

8,269

8,269

8,269

Equity and liabilities Trade payables

723,650

723,650

Financial liabilities

560,488

500,292

Derivatives used for hedging Income tax liabilities Other financial liabilities

723,650 15,322

30,427

30,427

14,447

556,766

55,680

55,680

621,244

707,875

30,427

55,680 707,875

86,631

1,310,573

1,310,573

30,427

By IAS 39 measurement categories Financial liabilities measured at cost

1,306,851

Financial liabilities measured at fair value through P&L (derivatives without balance sheet hedging relationship)

166 GEA Group Annual Report 2008

15,322

15,322

15,322

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Measurement as per IAS 39 Measurement

Carrying amount at (K EUR)

Fair value

as per other

Fair value at

through P&L through equity

IFRS

12/31/2007

317,667

1,241,541

11,186

11,186

279,162

279,162

98,188

218,943

Fair value

12/31/2007 Amortized cost

Assets Trade receivables Income tax receivables

1,241,541

Cash and cash equivalents

279,162

Other financial assets

218,943

Derivatives used for hedging

923,874

11,186

103,331

4,716

11,780

12,708 11,780

11,780

By IAS 39 measurement categories 995,698

995,698

995,698

Investments held to maturity

Loans and receivables

56

56

56

Investments available for sale

32,379

31,451

928

32,406

Financial assets measured at fair value through P&L (derivatives without balance sheet hedging relationship)

4,716

4,716

4,716

Equity and liabilities Trade payables

767,505

767,505

Financial liabilities

239,772

219,309

Derivatives used for hedging Income tax liabilities Other financial liabilities

767,505 6,166

3,301

3,301

10,996

235,926

54,653

54,653

568,115

665,412

3,301

54,653 665,412

97,297

1,084,111

1,084,111

3,301

By IAS 39 measurement categories Financial liabilities measured at cost

1,080,265

Financial liabilities measured at fair value through P&L (derivatives without balance sheet hedging relationship)

6,166

6,166

6,166

GEA Group Annual Report 2008 167

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

Primary financial assets The carrying amount corresponds to fair value in the case of trade receivables and other current financial assets subject to the measurement regulations of IAS 39. Assets allocated to the “financial assets available for sale” measurement category are predominantly measured at amortized cost since their fair values cannot be determined reliably

Primary financial liabilities The carrying amount corresponds to fair value in the case of trade payables and other current receivables subject to the measurement regulations of IAS 39. The fair value of fi xed interest liabilities represents the present value of expected future cash flows. Discounting is based on the interest rates prevailing on the balance sheet date. The carrying amount of variable interest-rate liabilities corresponds to fair value.

Derivative financial instruments The fair value of currency forwards on the balance sheet date is calculated on the basis of the cash currency exchange rate taking into account forward premiums and discounts corresponding to the relevant residual maturities. Forward premiums and discounts are derived from yield curves observable as of the balance sheet date. The calculation of the fair value of currency options is based on recognized valuation models. The fair value is affected by the remaining term of the option, the current exchange rate, the volatility of the exchange rate and the underlying yield curves. The fair value of interest rate swaps and options is determined using discounted anticipated future cash flows based on the market interest rates applicable to the residual maturities of these financial instruments. Prevailing market rates of interest are used for the residual maturities of the financial instruments. Interest/currency swaps also include the exchange rates of the relevant foreign currencies in which the cash flows occur. The fair value of commodity futures and options is obtained by measuring all contracts at the market terms prevailing at the balance sheet date, and thus corresponds to the actual value of the contract portfolio at the end of the year. The fair value of exchange-traded contracts is derived from their market price. Both GEA Group Aktiengesellschaft and external financial institutions perform the valuations on the balance sheet date. GEA Group uses derivative financial instruments, such as currency forwards, currency options, interest rate swaps, interest/ currency swaps and commodity futures. The derivative financial instruments are used to hedge foreign currency risks, interest rate risks and risks relating to the price of goods for existing or planned underlying transactions.

168 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

The following table provides an overview of the nominal values and fair values of derivative financial instruments in use as of the balance sheet date. The nominal volume in a foreign currency is translated at the rate prevailing on the balance sheet date. 12/31/2008 Nominal (K EUR)

12/31/2007 Nominal

volume

Fair value

volume

Fair value

Currency derivatives without hedging relationship

178,884

5,255

287,732

4,716

Currency derivatives part of cash flow hedges

114,235

8,118

241,991

11,780

47,663

2,741

-

-

Assets

Interest and interest/currency derivatives without hedging relationship

-

-

-

-

9,920

273

-

-

350,702

16,387

529,723

16,496

Currency derivatives without hedging relationship

292,174

11,884

125,065

3,467

Currency derivatives part of cash flow hedges

200,558

17,095

93,374

3,111

Interest and interests/currency derivatives part of cash flow hedges Commodity derivatives without hedging relationship Total Equity and liabilities

Interest and interest/currency derivatives without hedging relationship Interest and interests/currency derivatives part of cash flow hedges Commodity derivatives without hedging relationship Total

21,174

2,153

38,038

2,699

207,874

13,332

10,227

190

10,923

1,285

-

-

732,703

45,749

266,704

9,467

Derivative financial instruments part of hedging relationships Derivative financial instruments used as part of hedging relationships serve exclusively to hedge future cash flows with respect to foreign currency risks arising from future sales and procurement transactions, as well as interest rate risks arising from long-term financing (“cash flow hedges”). Hedging relationships (“fair value hedges”) are formed to hedge fluctuations in the fair values of assets, liabilities or binding agreements. The derivatives are measured at fair value, which is split into effective and ineffective portions. The effective portion and its change is reported directly in equity under the accumulated other comprehensive loss/income until the hedged item becomes balance-sheet-effective. The ineffective portion is booked through the income statement. At the time when the hedged item becomes balance-sheet-effective, the effect reported in equity is realized and the hedging relationship is dissolved. In the case of a sales transaction, realization of the effective portion is made under revenue. In the case of a procurement transaction, realization of the effective portion is made under purchase costs accordingly. With respect to interest rate derivatives, the effects reported in equity are released against interest expenses. As of December 31, 2008, gains of K EUR 8,118 (previous year: K EUR 11,780) and losses of K EUR 23,909 (previous year: K EUR 3,363) arising from currency and interest rate derivatives were reported in equity.

GEA Group Annual Report 2008 169

Notes to the Consolidated Financial Statements Notes to the Consolidated Balance Sheet: Equity and Liabilities

During the course of the fiscal year, K EUR 9,897 (previous year: K EUR 15,826) was realized through the income statement due to the hedged items becoming balance-sheet-effective. This amount, K EUR 9,624 (previously: K EUR 19,356) was attributable to revenue and K EUR 273 (previous year: K EUR -3,530) to cost of revenue. As in the previous year, there were no significant ineffectivities resulting from the hedges. For the subsequent year, prospectively 75 percent (previous year: 75 percent) of the hedged cash flows arising from the underlying transactions designated as of the balance sheet date will fall due. The remaining 25 percent (previous year: 25 percent) will fall due by 2012. As most underlying transactions are used to hedge financial assets, they are booked through the income statement as soon as the addition arises.

Derivative financial instruments without hedging relationships If the preconditions for the formation of a hedging relationship are not present, the change in fair value is booked through the income statement.

170 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8. Notes to the Consolidated Income Statement 8.1 Revenue The following table provides a breakdown of GEA Group’s revenue: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

from the sale of goods

2,416,016

2,068,719

from construction contracts

2,762,952

2,787,251

Total

5,178,968

4,855,970

(K EUR)

8.2 Other income Other income consisted of the following components: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Income from the disposal of assets

7,201

11,586

Income from damage compensation and cost reimbursement

7,299

5,107

Income from payments relating to impaired receivables

6,918

3,577

Gains on exchange differences

61,557

31,286

Income from reversal of provisions

30,222

14,821

Income from rental and lease agreements

6,789

7,986

Realization of differential amount between acquired assets and lower acquisition costs

2,260

-

33,075

22,376

155,321

96,739

(K EUR)

Sundry income Total

The increase in sundry income mainly results from a debtor warrant with a Canadian mining company.

GEA Group Annual Report 2008 171

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8.3 Other expenses Other expenses consisted of the following components: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Non-reimbursed research and development costs

59,097

50,206

Losses on exchange differences

62,781

31,308

Impairment of trade receivables

9,229

4,063

912

859

(K EUR)

Cost of money transmission and payments Losses on disposal of non-current assets Sundry expenses Total

1,845

946

18,350

25,678

152,214

113,060

Sundry expenses Sundry expenses mainly include additions to provisions.

Research and development costs Total research and development costs were as follows in 2008:

(K EUR)

1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Customer-funded (reimbursed)

17,173

22,179

Group-funded (non-reimbursed)

59,097

50,206

Total

76,270

72,385

Reimbursed expenses relate to research and development costs, which, as part of construction contracts, are billed to customers and are included in cost of sales. Non-reimbursed research and development expenses are not related directly to construction contracts, and are booked directly through the income statement.

172 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8.4 Presentation of selected expenses and income according to origin Cost of materials The cost of materials rose by K EUR 17,281 in the reporting year, and consequently amounted to K EUR 2,884,394 (previous year: K EUR 2,867,113). The cost of materials is reported under the cost of sales.

Staff costs Staff costs rose by K EUR 105,641 to K EUR 1,174,170 in 2008 (previous year: K EUR 1,068,529). Amounts resulting from the interest cost of expected pension obligations are not reported as personnel expense, but instead as a component of interest expense under financial and interest expenses. Staff costs include wages and salaries of K EUR 974,610 (previous year: K EUR 880,933) and social security contributions and post-employment benefits of K EUR 199,560 (previous year: K EUR 187,596).

Depreciation, amortization, and impairment Depreciation, amortization and impairment of property, plant, and equipment, investment properties and intangible assets in the year under review amounted to K EUR 81,375 (previous year: K EUR 78,074). Impairment of investments in non-consolidated subsidiaries, other equity investments and securities amounted to K EUR 742 (previous year: K EUR 2,059). Adjustments of K EUR 11,232 (previous year: K EUR 10,250) were recognized to inventories. Depreciation, amortization and impairment are reported under the cost of sales. Impairment of equity investments and securities is reported under fi nancial expenses.

GEA Group Annual Report 2008 173

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8.5 Financial and interest income Financial income Financial income comprises income from profit transfer agreements and net investment income from sundry equity investments:

(K EUR)

1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Income from profit transfer agreements Income from equity investments of which from non-consolidated subsidiaries Total

302

386

3,324

2,187

3,238

1,670

3,626

2,573

Interest income The table below provides a breakdown of interest and similar income: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

20,831

11,001

1,178

930

Interest income from plan assets

5,603

6,395

Other interest income

7,610

4,113

34,044

21,509

(K EUR) Interest income from receivables, investments and securities of which from non-consolidated subsidiaries

Total

The following table shows interest income from financial instruments according to IAS 39 measurement categories and interest income from assets measured according to other guidelines:

(K EUR) Loans and receivables Investments held to maturity Investments held for sale Investments measured at fair value through profit or loss Measurement according to other standards than IAS 39 Total

174 GEA Group Annual Report 2008

1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

17,817

13,893

7

3

29

51

10,588

1,147

5,603

6,415

34,044

21,509

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8.6 Financial and interest expenses Financial expenses The financial expenses for 2008 of K EUR 968 (previous year: K EUR 2,081) contain impairment of K EUR 815 (previous year: K EUR 2,059) on fi nancial assets (excluding trade receivables) and expenses of K EUR 153 (previous year: K EUR 22) from the assumption of losses.

Interest expenses The table below provides a breakdown of interest expense and similar charges: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Interest expense arising from liabilities to banks

24,839

24,563

Interest cost of pension obligations

28,629

27,893

(K EUR)

Interest cost of provisions and other obligations to employees Other interest expense of which owed to non-consolidated subsidiaries Total interest expense

3,967

2,337

22,014

16,238

1,433

912

79,449

71,031

The following table shows interest expense from financial instruments according to IAS 39 measurement categories and interest expense from liabilities measured according to other guidelines: 1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

Financial liabilities measured at cost

34,048

39,154

(K EUR)

Financial liabilities measured at fair value through profit or loss

12,043

1,330

Measured according to other standards than IAS 39

33,358

30,547

Total

79,449

71,031

GEA Group Annual Report 2008 175

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

A total of K EUR 912 was expense for fees during 2007 (previous year: K EUR 859), which was not included in the calculation of the effective interest rate. The following table shows the net result from financial instruments according to IAS 39 measurement categories: 1/1/2008 - 12/31/2008

1/1/2007 - 12/31/2007 Of which

Of which

from (K EUR) Loans and receivables

Of which

impairment/

Net result

from interest

reversal

from Of which

impairment/

Net result

from interest

reversal

14,228

17,817

-2,311

4,748

13,893

-486

Investments held to maturity

530

7

-2

352

3

-

Investments available for sale

4,463

29

-604

4,186

51

-2,059

Investments measured at fair value through profit or loss

-9,346

-1,455

-136

6,324

-183

-

Financial liabilities measured at cost

-33,842

-34,048

-

-35,871

-39,154

-

Total

-23,967

-17,650

-3,053

-20,261

-25,390

-2,545

The net value impairments relating to assets in the “loans and receivables” measurement category concern trade receivables.

176 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8.7 Income taxes Income taxes on continuing operations consists of the following components:

(K EUR)

1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

75,233

64,418

Current taxes German

5,963

4,616

Foreign

69,270

59,802

Deferred taxes Total

34,597

50,003

109,830

114,421

The following reconciliation of income tax for the 2008 is based on an overall tax rate of 29.5 percent and reconciles figures to the effective tax rate of 23.9 percent: 1/1/2008 - 12/31/2008 K EUR Percent

1/1/2007 - 12/31/2007 K EUR Percent

Earnings before tax

458,805

-

351,591

-

Anticipated tax expense

135,348

29,5

136,769

38,9

4,722

1,0

903

0,3

Non-tax-deductible expense Tax-exempt income Change in valuation allowance Change in tax rates Foreign tax rate differential

-1,297

-0,3

-13,819

-3,9

-12,104

-2,6

-52,441

-15,0

-1,178

-0,3

68,156

19,3

790

0,2

-15,951

-4,5

Other

-16,451

-3,6

-9,196

-2,6

Income tax and effective tax rate

109,830

23,9

114,421

32,5

Changes in valation allowance The change in valation allowance mainly reflects the use of loss carryforwards and prioryear corrections in Germany and the USA. The change tin valation allowance in the previous year arises primarily as a result of revised estimates in Germany (increase of K EUR 50,000) and the USA (reduction of K EUR 53,366).

Changes to tax rates The effects of changes to tax rates result from various changes to tax rates abroad. The effects in the previous year are mainly based on the reform of German corporation tax in 2008. The tax reform reduced the tax rate for the Group companies in Germany from 38.9 percent to 29.5 percent. An expense of K EUR 73,768 arose from the revaluation of deferred tax necessitated by the reform. This was reported to an amount of K EUR 68,964 in the tax expense relating to continuing operations. The other effects in the former year amounting to K EUR -808 arise from changes in foreign taxation rates.

GEA Group Annual Report 2008 177

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

Foreign taxation differences The decline in taxation differences compared with the previous year results from the changed tax rate in Germany. This now amounts to 29.5 percent, following 38.9 percent.

Other The rise in other effects mainly results from tax reimbursements for previous years.

Deferred taxes The table below provides a breakdown of deferred tax assets and liabilities by maturity:

(K EUR)

12/31/2008

12/31/2007

62,306

52,393

Non-current deferred tax assets

252,050

312,517

Total deferred tax assets

314,356

364,910

Current deferred tax liabilities

42,675

35,704

Non-current deferred tax liabilities

45,720

51,515

Current deferred tax assets

Total deferred tax liabilities Net deferred tax assets

88,395

87,219

225,961

277,691

Deferred tax assets and liabilities are netted if an enforceable right to offset actual tax assets against actual tax liabilities exists and if the deferred tax relates to income tax levied by the same tax authority.

178 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

The table below shows the stock in deferred taxes, without netting:

(K EUR)

Deferred tax assets 2008 2007

Deferred tax liabilities 2008 2007

Property, plant and equipment

5,767

4,226

23,917

25,863

Intangible assets

1,265

1,835

26,942

16,451

75,782

85,112

41,347

39,489

19

-

213

116

Goodwill Investments in enterprise reported at-equity Other financial assets

10,741

10,088

3,648

5,496

Non-current assets

93,574

101,261

96,067

87,415

Inventories

22,810

22,156

3,314

5,046

Trade receivables

11,680

16,525

26,522

25,461

9,394

12,717

6,132

7,497

113

13

96

11

43,997

51,411

36,064

38,015

107

585

793

156

137,678

153,257

132,924

125,586

Provisions

17,079

28,646

1,149

515

Obligations to employees

38,600

46,030

901

222

3,317

1,393

732

-

917

1,082

10,002

15,430

Non-current liabilities

59,913

77,151

12,784

16,167

Provisions

27,804

25,619

5,954

4,250

7,840

7,958

213

1,300

Other financial assets Cash and cash equivalents Current assets Assets held for sale Total assets

Financial liabilities Other financial liabilities

Obligations to employees Financial liabilities

6,727

2,087

1,565

987

Trade payables

2,329

1,453

492

7,037

Other financial liabilities

7,844

294

33,538

24,806

Current liabilities

52,544

37,411

41,762

38,380

112,457

114,562

54,546

54,547

Valuation allowances applied to temporary differences

-4,266

-968

-

-

Deferred taxes relating to temporary differences

245,869

266,851

187,470

180,133

Total equity and liabilities

Tax loss carryforwards

992,011

1,113,034

-

-

-824,449

-922,061

-

-

Deferred tax balance

-99,075

-92,914

-99,075

-92,914

Recognized deferred taxes

314,356

364,910

88,395

87,219

Valuation allowances applied to tax loss carryforwards

GEA Group Annual Report 2008 179

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

As of December 31, 2008, GEA Group recognized deferred tax assets of K EUR 167,562 on tax loss carryforwards:

(K EUR)

12/31/2008

12/31/2007

- Corporation income tax

41,198

42,296

- Trade taxes

35,106

36,109

Deferred taxes on loss carryforwards outside Germany

91,258

112,568

167,562

190,973

Deferred taxes on domestic loss carryforwards

Total

The reduction of deferred tax assets relating to foreign loss carryforwards is based mainly on the utilization of loss carryforwards in the USA. Deferred tax assets relating to German tax loss carryforwards are almost unchanged since the utilization of tax loss carryforwards in the past year is offset by a revaluation to almost the same amount. A tax rate of 29.5 percent is applied to Group companies in Germany. This includes the standard rate of corporate tax, the Solidarity Surcharge and the average rate of trade tax. As in the previous year, the tax rates applicable to companies outside Germany vary between 12.5 percent (Ireland) and 41.7 percent (Japan). No deferred tax assets were accrued on corporate tax loss carryforwards of K EUR 2,233,060 (previous year: K EUR 2,354,155) and on trade tax loss carryforwards of K EUR 1,761,522 (previous year: K EUR 2,001,537) because their utilization was not sufficiently certain. The German companies’ losses can be carried forward indefi nitely. The foreign companies’ losses can usually only be carried forward for a limited period. The majority of the foreign companies’ loss carryforwards will expire prospectively in 2011.

180 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Notes to the Consolidated Income Statement

8.8 Earnings per share Earnings per share are calculated as follows:

(K EUR) Net income after minority interest of which on continuing operations of which on discontinued operations Weighted average number of shares in outstanding (thousands)

1/1/2008 -

1/1/2007 -

12/31/2008

12/31/2007

99,630

282,400

348,975

237,170

-247,998

46,343

183,942

187,285

0.54

1.51

1.89

1.26

-1.35

0.25

Earnings per share (EUR) On net income of which on continuing operations of which on discontinued operations

There were no dilutive effects in either 2008 or 2007.

8.9 Appropriation of earnings The single-entity financial statements of GEA Group Aktiengesellschaft, prepared according to the German Commercial Code, report annual net profit of K EUR 258,368. According to § 23 Paragraph 3 of the articles of association, the supervisory and executive boards are permitted when adopting the annual financial statements to transfer either part or the entirety of the net income for the year to retained earnings in consideration of § 58 Paragraph 2 Clause 3 of the German Stock Corporation Act (AktG), and to the extent that the total of other retained earnings does not exceed half of the issued share capital. The supervisory and executive boards have transferred K EUR 184,367 to the other revenue reserves. The Executive and Supervisory Boards propose that the Annual General Meeting appropriate the distributable profit of K EUR 74,001 as follows:

Appropriation Dividend payment to shareholders Profit carried forward Total

K EUR 73,523 478 74,001

The dividend payment corresponds to a dividend payment of 40 cents per share, given a total of 183,807,845 shares. The payment of the dividend is made without deducting local withholding tax and the Solidarity Surcharge.

GEA Group Annual Report 2008 181

Notes to the Consolidated Financial Statements Contingent Liabilities, Other Financial Obligations, Contingent Assets and Litigation

9. Contingent Liabilities, Other Financial Obligations, Contingent Assets and Litigation 9.1 Contingent liabilities GEA Group Aktiengesellschaft has issued or has mandated the issue of bank and Group guarantees in favor of customers or lenders. The obligations presented in the table below shows contingencies where the primary creditor is not a consolidated company.

(K EUR)

Bank guarantees 2008 2007

Group guarantees 2008 2007

Guarantees for advances

15,316

16,892

312

15,994

Warranty guarantees

20,453

44,057

402

407

280,759

344,761

398,753

412,953

11,344

10,255

30,698

41,204

Performance of contracts guarantees Other warranty declarations Total of which relating to Lurgi / Lentjes

327,872

415,965

430,165

470,558

278,819

367,904

409,344

448,202

The major portion of the bank and Group guarantees relate to Lurgi and Lentjes. As recollateralization, GEA Group Aktiengesellschaft has received from the purchasers bank guarantees with a total volume of K EUR 343,000 (previous year: K EUR 343,000) and Group guarantees of K EUR 20,000 (previous year: K EUR 20,000) (please refer to the Notes 3). The other guarantees relate mainly to customers of non-consolidated companies, banks and employees of former subsidiaries. The beneficiaries are entitled to use the guarantees if the primary debtor fails to satisfy contractual obligations such as delayed or improper delivery, the failure to adhere to guarantee performance parameters, or the improper repayment of loans. Durations vary depending on the type of guarantee. The weighted average duration of the Group guarantees amounts to 3.5 years (previous year: 1.7 years). All guarantees mandated or issued by GEA Group Aktiengesellschaft are at the mandate or counter-liability of the primary debtor. Besides liability risks arising from bank and Group guarantees, there also exist mainly risks arising from judicial, arbitration or out-of-court disputes (please refer to the Section 9.4), which may result in cash outflows.

182 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Contingent Liabilities, Other Financial Obligations, Contingent Assets and Litigation

9.2 Other financial commitments The table below provides a breakdown of other fi nancial liabilities as of December 31, 2008:

(K EUR)

12/31/2008

12/31/2007

Rental and lease agreements

317,375

307,931

Order commitments

274,135

184,342

Rental and lease agreements The commitments of K EUR 317,375 (previous year: K EUR 307,931) under rental and lease agreements relate mainly to land and buildings and, to a lesser extent, plant and equipment. The leases run until no later than 2031. Payments are spread over future years as follows:

(K EUR)

12/31/2008

2009

77,067

2010

67,879

2011

52,521

2012

38,584

2013

25,276

Thereafter

56,048

Total payments

317,375

In 2008, the cost of rental and lease agreements amounted to K EUR 104,210 (previous year: K EUR 74,064), of which K EUR 13,496 (previous year: K EUR 12,983) related to variable payments. Sub-leases in the reporting year generated income of K EUR 20,261 (previous year: K EUR 19,877). These sub-leases give rise to claims to rental income of K EUR 76,947 (previous years: K EUR 92,041) over the next few years. Sale-and-leaseback agreements on buildings give rise to future cash payments of K EUR 120,414 (previous year: K EUR 123,681) as of the balance sheet date.

Order commitments Of the total order commitments of K EUR 274,135 (previous year: K EUR 184,342), 91 percent relates to inventories (previous year: 95 percent), and the remaining 9 percent to property, plant and equipment (previous year: 5 percent).

GEA Group Annual Report 2008 183

Notes to the Consolidated Financial Statements Contingent Liabilities, Other Financial Obligations, Contingent Assets and Litigation

9.3 Contingent assets The court ruled in favor of GEA Group Aktiengesellschaft in the arbitration proceedings against US-based Flex-N-Gate Corp., Urbana, Illinois/USA, on September 15, 2006. This ruling means Flex-N-Gate is obligated to compensate GEA Group Aktiengesellschaft for the losses it incurred in connection with the collapse of the sale of the Dynamit Nobel Plastics business to Flex-N-Gate in the autumn of 2004. The second part of the case, when the level of damages to be paid to GEA Group Aktiengesellschaft will be determined, is still pending. The fi nal judgment regarding the level of compensation in this matter is expected during the course of the 2009 fiscal year. Arbitration proceedings launched by GEA Group against the Ukraine at the World Bank arbitration court (International Centre for the Settlement of Investment Disputes - ICSID) was registered on November 21, 2008. Proceedings will start in spring 2009. This matter relates to the enforcement of an International Chamber Of Commerce (ICC) arbitration award from 2002 relating to a low double-digit amount in millions that are due from a state affi liated Ukrainian company. The background to the ICC’s arbitration award, which fully vindicated GEA Group Aktiengesellschaft, was the disappearance of large volumes of diesel oil supplies that a former GEA Group Aktiengesellschaft subsidiary had delivered to the Ukraine. GEA Group Aktiengesellschaft accuses the Ukraine of having hindered the enforcement of the ICC arbitration award in a way that is tantamount to illegal expropriation, and in breach of the investment convention existing between the Federal Republic of Germany and the Ukraine.

9.4 Litigation The lawsuit brought by the insolvency administrator of Polyamid 2000 AG relating to the repayment of an amount of EUR 164.6 million, including VAT, for the construction of a carpet recycling plant was the subject of a judgment made by the Federal High Court of Justice (BGH) on July 9, 2007. The plaintiff was deemed to have no entitlement to the repayment of the full compensation for work performed. A potential claim exists only to the extent that the remuneration received is deemed to have been above the usual or appropriate level of remuneration according to legislation governing unjustified enrichment. The case was referred to the Higher Regional Court (OLG) of Frankfurt am Main. The Higher Regional Court (OLG) rejected the lawsuit, and has not permitted an appeal to the Federal High Court of Justice (BGH). The plaintiff has submitted a complaint relating to non-admission to the Federal High Court of Justice (BGH). In connection with the conclusion of the control and profit-transfer agreement between Metallgesellschaft AG and the former GEA AG in 1999, an appeal is still pending before the District Court in Dortmund regarding the appropriateness of the exchange offer made to shareholders of the former GEA AG.

184 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Contingent Liabilities, Other Financial Obligations, Contingent Assets and Litigation

The appeal launched at the District Court in Dortmund after the squeeze-out resolution of the Annual General Meeting of the former GEA AG was concluded with the courtrecorded settlement on July 2, 2008. The settlement entails a rise in the cash settlement from EUR 43.33 (per preference share) and EUR 48.15 (per ordinary share) to a uniform EUR 53.00 plus interest. There are sector-specific legal cases relating to the former subsidiaries of the Plant Engineering business in connection with the acceptance and processing of orders, whose disputed sums partly reach several millions of euros. As part of the disposal of the Lentjes Group, GEA Group effected a wide-ranging release of the purchaser from various risks arising from existing orders and legal disputes. There is currently a lack of unanimity between the parties concerning foreign currency matters relating to the level of loss compensation to be granted. There are contractual arrangements for arbitration proceedings to be launched should unanimity fail to be achieved with respect to these matters. Further legal proceedings or official investigations have been instituted, or may be instituted, against companies of the GEA Group as a result of earlier disposal activities and their ongoing business operations. As part of the disposal of the Lurgi Group to the Air Liquide Group of France, an arbitrator’s expert opinion process and arbitration proceedings have been started relating to a potential price adaptation reflecting differing opinions relating to various items in the reference balance sheets. Appropriate provisions have been formed for risks arising from the legal disputes described above, as well as for others. It is nevertheless impossible to predict the outcome of individual cases with any degree of certainty. Consequently, it cannot be excluded that the conclusion of these lawsuits may in some cases incur expenses that exceed the provisions potentially formed for such purposes.

GEA Group Annual Report 2008 185

Notes to the Consolidated Financial Statements Segment Reporting

10. Segment Reporting 10.1 Business segments The Group’s global operations were organized into three business segments as of December 31, 2008. Its main operations are split as follows: – Energy and Farm Technology – Process Technology – Other A detailed description of the business segments’ operations and the products and services they offer can be found in the management report.

186 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Segment Reporting

(EUR million)

Energy and Farm

Process

Technology

Technology

Other

1,816.3

3,330.6

2.2

7.5

1,818.6 0.7

Consolidation

GEA Group

32.1

-

5,179.0

-

-9.8

-

3,338.1

32.1

-9.8

5,179.0

1.3

0.2

-

2.2

165.5

369.7

-30.8

-0.2

504.2

11.3

23.9

46.9

-48.1

34.0

1/1/2008 - 12/31/2008 Revenue Intersegment revenue Total revenue Net income on equity measurement EBIT Interest income Interest expense Segment earnings before tax Income taxes Net income/loss discontinued operations Segment assets Segment liabilities Carrying amount of shares recognized using the equity method

18.1

36.2

73.3

-48.1

79.4

158.7

357.5

-57.4

-

458.8

27.6

49.8

32.4

-

109.8

-

-

-248.0

-

-248.0

1,657.0

3,315.1

2,135.8

-1,979.6

5,128.3

883.4

1,770.0

2,001.4

-981.8

3,672.9

3.6

6.8

1.6

-

12.0

Investments in tangible, intangible fixed assets and goodwill

97.8

204.1

11.1

-

312.9

Depreciation/amortization

25.2

45.4

19.0

-

89.5

-

0.1

30.0

-

30.1

88.5

181.5

275.4

-

545.5

1,643.5

3,142.9

69.5

-

4,856.0

4.7

16.1

6.6

-27.4

-

1,648.3

3,159.0

76.2

-27.4

4,856.0

0.3

0.9

-

-

1.2

139.8

301.7

-40.8

0.4

401.1

7.4

22.7

30.7

-39.3

21.5

Impairment Addition to provisions 1/1/2007 - 12/31/2007 Revenue Intersegment revenue Total revenue Net income on equity measurement EBIT Interest income Interest expense Segment earnings before tax Income taxes Net income/loss discontinued operations Segment assets Segment liabilities Carrying amount of shares recognized using the equity method

16.6

29.4

64.4

-39.3

71.0

130.6

295.0

-74.2

0.2

351.6

45.4

71.2

-2.1

-

114.4

-

-

46.3

-

46.3

1,452.0

3,113.6

1,968.4

-1,786.0

4,748.0

726.3

1,691.6

1,829.9

-913.5

3,334.3

4.7

6.2

3.6

-

14.6

Investments in tangible, intangible fixed assets and goodwill

81.5

212.1

22.4

-

316.0

Depreciation/amortization

21.1

39.5

18.1

-

78.7

-

-

7.2

-

7.2

70.7

131.3

429.3

-

631.4

Impairment Additions to provisions

GEA Group Annual Report 2008 187

Notes to the Consolidated Financial Statements Segment Reporting

The consolidation mainly comprises the elimination of Group-internal revenue, as well as interest expense and income. Intra-segment sales are based on market prices. The accounting principles used for the recognition and measurement of segmental assets are the same as those applying for the Group, and are described in the accounting principles section of the annual report. The benchmark of profitability for both the Group and its segments is EBIT (earnings before interest and tax) and EBT (earnings before tax), as presented in the income statement. Impairments contain all impairments relating to tangible fi xed assets, intangible assets and investment property.

10.2 Geographical segments When presenting information according to geographic regions, the allocation of revenue is according to the domicile of the customer. Assets are allocated according to the relevant location. With the exception of Germany, the “Other Europe” region comprises all European Community countries, EFTA and the Commonwealth of Independent States (CIS). The “Americas” region contains the states of North, Central and South America. Other (EUR million)

Asia /

Germany

Europe

Americas

Oceania

Africa

Total

682.1

2,149.5

1,042.7

1,125.6

179.2

5,179.0

1,013.4

736.2

213.3

71.5

3.8

2,038.3

643.4

2,017.3

1,000.7

1,068.1

126.5

4,856.0

1,046.4

652.0

179.2

46.2

2.5

1,926.2

1/1/2008 - 12/31/2008 External revenue Non-current assets (property, plant and equipment, intangible assets and investment properties) 1/1/2007 - 12/31/2007 External revenue Non-current assets (property, plant and equipment, intangible assets and investment properties)

There are no relationships with individual customers whose revenue is deemed material compared to total Group revenue.

188 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Events following the balance sheet date / Other notes

11. Events following the balance sheet date The Refrigeration Division acquired all shares in Eurotek Engineering Ltd., Norwich/United Kingdom, on January 16, 2009. The company operates in the area of refrigeration and freezing technology for foodstuff production and generated revenue of around EUR 8 million in the 2007 fiscal year with a workforce of 21 employees. Eurotek’s main activities comprise the development, installation and servicing of industrial refrigeration plants such as spiral, tunnel or carton freezing systems. In addition, the Refrigeration Division acquired all of the key assets of Intec USA, LLC, Durham (NC)/USA, and of its two sister companies in New Zealand on January 29, 2009. Intec produces carton freezing systems, and generated revenue of EUR 8 million in the 2008 fiscal year with a workforce of around 20 employees. Provisional purchase costs for these companies total K EUR 7,171. These are offset by provisionally measured net assets of K EUR 6,843. Uncertainties exist mainly with respect to the measurement of the intangible assets. A calculated goodwill addition of K EUR 328 results from this divisional valuation.

12. Other notes 12.1 Notes to the Cash Flow Statement Cash flow from investing activities discloses cash outflows of K EUR 215,007 arising from the disposal of discontinued operations. These cash outflows relate to an outgoing payments connected with the disposal of business areas in previous periods. Of this amount, the largest portion of K EUR 192,944 is attributable to the former Lurgi and Lentjes divisions and results entirely from project-related indemnities. The remaining outgoing payments of K EUR 22,063 and exclusively connected with the disposal of Dynamit Nobel , and result from the agreement concluded with the purchaser relating to the settlement of claims arising from guarantees and warranties contained in the purchase agreement. The K EUR 571,513 cash inflow reported in the previous year reflects Air Liquide’s purchase price payment for Lurgi.

GEA Group Annual Report 2008 189

Notes to the Consolidated Financial Statements Other notes

12.2 Government grants Government grants of K EUR 637 million related to income were received in 2008 (previous year: K EUR 2,120). These grants were deducted from the corresponding expenses. Grants of K EUR 3,227 related to assets were deducted from the carrying amount of the respective asset (previous year: K EUR 134). Expenses of K EUR 158 were incurred in 2008 for the potential repayment of grants received (previous year: K EUR 2,564).

12.3 Related party disclosures 12.3.1 Transactions with related companies Transactions between GEA Group Aktiengesellschaft and its consolidated subsidiaries have been eliminated as part of consolidation, with the exception of income and expenses arising between continuing and discontinued operations. The table below provides a breakdown of the income and expenses generated by transactions with non-consolidated subsidiaries and associates: (K EUR)

Revenue

Other income

Other expenses

48,047

2,253

3,819

1/1/2008 - 12/31/2008 Non-consolidated subsidiaries Equity investments and joint-ventures Total

9,262

189

71

57,309

2,442

3,890

65,707

1,802

2,001

1/1/2007 - 12/31/2007 Non-consolidated subsidiaries Equity investments and joint-ventures Total

190 GEA Group Annual Report 2008

4,958

109

8

70,665

1,911

2,009

Notes to the Consolidated Financial Statements Other notes

The table below provides a breakdown of outstanding items from transactions with related companies as of December 31, 2008: (K EUR)

Trade receivables

Trade payables

Other receivables

Other liabilities

27,313

3,662

20,141

23,653

4,638

1,052

125

1,173

31,951

4,714

20,266

24,826

31,951

4,714

20,266

24,826

33,078

4,062

20,333

25,203

12/31/2008 Non-consolidated subsidiaries Equity investments and joint-ventures Total of which current 12/31/2007 Non-consolidated subsidiaries Equity investments and joint-ventures Total of which current

743

598

845

70

33,821

4,660

21,178

25,273

33,821

4,660

20,863

25,273

The changes to revenues and trade receivables with non-consolidated subsidiaries mainly result from the first-time consolidation of subsidiaries in fiscal year 2008. Other income and expenses contain interest income and expenses for the first time this year. Previous years’ figures were adjusted correspondingly. Outstanding items are settled in bank transfer, and are unsecured.

12.3.2 Remuneration paid to the Executive Board and the Supervisory Board The Executive Board of GEA Group Aktiengesellschaft received total remuneration of K EUR 5,635 in fiscal 2008. The table below provides a breakdown of this remuneration:

(K EUR)

2008

2007

Base salary

2,221

2,576

Bonus

3,175

4,707

164

209

Non-cash remuneration Pension allowance Total

75

43

5,635

7,535

Former members of the Executive Board and their surviving dependants received remuneration of K EUR 1,666 (previous year: K EUR 2,126) from GEA Group Aktiengesellschaft and payments of K EUR 5,238 (previous year: K EUR 5,717) from the GEA Group. GEA

GEA Group Annual Report 2008 191

Notes to the Consolidated Financial Statements Other notes

Group Aktiengesellschaft accrued IFRS pension reserves of K EUR 27,548 (previous year: K EUR 27,136) for former members of the Executive Board and their surviving dependants; the GEA Group accrued pension reserves of K EUR 56,616 (previous year: K EUR 57,384) for these persons. Expenses incurred for the Supervisory Board amounted to K EUR 738 in 2008 (previous year: K EUR 670). Further information about the remuneration paid to the Executive Board and the Supervisory Board can be found on page 74 et seq. of the management report. There were no other transactions conducted by management or supervisory board members, or related parties or companies, during either the reporting period or the previous period.

12.4 Further disclosures pursuant to § 315a a of the German Commercial Code (HGB) 12.4.1 Declaration on the German Corporate Governance Code On November 25, 2008 the executive and supervisory boards issued an updated declaration of compliance pursuant to § 161 of the German Stock Corporation Act (AktG), and posted it on the company’s website, where it can be accessed permanently by shareholders.

12.4.2 Number of employees The average number of employees (excluding trainees and apprentices) during the year was as follows:

Employees at balance sheet day * Wage earners

2008

2007

8,224

7,493

Salaried employees

12,388

11,216

Continuing operations

20,612

18,709

155

134

Wage earners Salaried employees Discontinued operations Total

77

1,020

232

1,154

20,844

19,863

* Full-time equivalents (FTEs), excl. apprentices /trainees and inactive employees

Employees of Ruhr-Zink GmbH and MG Rohstoff handel GmbH have been allocated retrospectively to previous year’s figures for discontinued operations. The previous year’s figures for discontinued operations also contain employees of the Lurgi Division, which was sold on July 20, 2007.

192 GEA Group Annual Report 2008

Notes to the Consolidated Financial Statements Other notes

The number of employees (excluding trainees and apprentices) at the balance sheet date was as follows:

Employees at balance sheet day * Wage earners

12/31/2008

12/31/2007

8,614

7,724

Salaried employees

12,713

11,620

Continuing operations

21,327

19,344

157

138

Wage earners Salaried employees Discontinued operations Total

74

78

231

216

21,558

19,560

* Full-time equivalents (FTEs), excl. apprentices /trainees and inactive employees

12.4.3 Auditing and consultancy fees The table below provides a breakdown of the fees and expenses paid to the auditors of the 2008 consolidated fi nancial statements:

(K EUR)

2008

2007

Auditing

1,911

1,921

244

280

70

104

2,225

2,305

Tax advice Other services Total

GEA Group Annual Report 2008 193

Notes to the Consolidated Financial Statements Other notes

12.4.4 Major shareholdings The complete list of shareholdings is published in the electronic Federal Gazette. A list of shareholdings can also be found on the internet at www.geagroup.com. The following list contains only major shareholdings when measured in terms of revenue and total assets:

Segment

Company

Head Office

Country

GEA Air Treatment GmbH

Herne

Germany

GEA WestfaliaSurge Deutschland GmbH

Bönen

Germany

GEA WestfaliaSurge, Inc.

Delaware

USA

GEA Energietechnik GmbH

Bochum

Germany

S.A.S.

Nantes

France

GEA Bischoff GmbH

Essen

Germany

Royal GEA Grasso Holding N.V.

’s-Hertogenbosch

Netherlands

Energy and Farm Technology

GEA Batignolles Technologies Thermiques

Process Technology

Other

194 GEA Group Annual Report 2008

GEA Process Equipment GmbH

Duisburg

Germany

GEA Ecoflex GmbH

Sarstedt

Germany

GEA Westfalia Separator GmbH

Oelde

Germany

GEA Westfalia Separator Process GmbH

Oelde

Germany

GEA Westfalia Separator Production GmbH

Oelde

Germany

GEA Process Engineering A/S

Søborg

Denmark

GEA Procomac S.p.A.

Sala Baganza

Italy

GEA Pharma Systems Limited

Eastleigh Hampshire

United Kingdom

GEA Group Aktiengesellschaft

Bochum

Germany

GEA North America, Inc.

Delaware

USA

GEA Real Estate GmbH

Frankfurt am Main

Germany

GEA PT Holding GmbH

Bochum

Germany

GEA PT France SAS

Saint-Quentin en Yvelines

France

LL Plant Engineering AG

Ratingen

Germany

Ruhr-Zink GmbH

Datteln

Germany

ZiAG Plant Engineering GmbH

Frankfurt am Main

Germany

Notes to the Consolidated Financial Statements Other notes

12.4.5 Companies exempted under § 264 Paragraph 3 of the German Commercial Code (HGB) GEA 2H Water Technologies GmbH, Wettringen GEA Air Treatment GmbH, Herne GEA Air Treatment Marketing Services International GmbH, Herne GEA AWP GmbH, Prenzlau GEA Bischoff GmbH, Essen GEA Delbag Lufttechnik GmbH, Herne GEA Diessel GmbH, Hildesheim GEA Ecoflex GmbH, Sarstedt GEA Energietechnik GmbH, Bochum GEA Energy Technology GmbH, Bochum GEA Grasso GmbH, Berlin GEA Grasso International GmbH, Berlin GEA Happel Klimatechnik GmbH, Herne GEA Happel Klimatechnik Produktions- und Servicegesellschaft mbH; Herne GEA Happel Service GmbH , Willich GEA Happel Wieland GmbH, Sprockhövel-Haßlinghausen GEA Industrial Products, Bochum GEA Industriebeteiligungen GmbH, Bochum GEA IT Services GmbH, Oelde GEA Jet Pumps GmbH, Ettlingen GEA Klima- und Filtertechnik Wurzen GmbH, Wurzen GEA Küba GmbH, Baierbrunn GEA Luftkühler GmbH, Bochum GEA Lyophil GmbH, Hürth GEA Management Gesellschaft für Wärme- u. Energietechnik mbH, Bochum GEA Maschinenkühltechnik GmbH, Bochum GEA Messo GmbH, Duisburg GEA NEMA Wärmetauscher GmbH, Netzschkau GEA NIRO GmbH, Müllheim GEA Process Equipment GmbH, Duisburg GEA Procomac Deutschland GmbH, Hildesheim GEA PT Holding GmbH, Bochum GEA Real Estate GmbH, Frankfurt am Main GEA Renzmann & Grünewald GmbH, Monzingen GEA TDS GmbH, Sarstedt GEA Tuchenhagen GmbH, Büchen GEA Westfalia Separator Deutschland GmbH, Oelde GEA Westfalia Separator GmbH, Oelde GEA Westfalia Separator Process GmbH, Oelde GEA Westfalia Separator Production GmbH, Oelde

GEA Group Annual Report 2008 195

Notes to the Consolidated Financial Statements Other notes

GEA Westfalia Separator Systems GmbH, Oelde GEA WestfaliaSurge Deutschland GmbH, Bönen GEA WestfaliaSurge GmbH, Bönen GEA Wiegand GmbH, Ettlingen GEA WTT GmbH, Nobitz-Wilchwitz Huppmann GmbH, Kitzingen LL Plant Engineering AG, Ratingen mg Altersversorgung GmbH, Bochum mg capital gmbh, Bochum Paul Pollrich GmbH, Mönchengladbach Tuchenhagen Brewery Systems GmbH, Büchen ZiAG Plant Engineering GmbH, Frankfurt am Main

Bochum, March 3, 2009 The Executive Board

Jürg Oleas

196 GEA Group Annual Report 2008

Hartmut Eberlein

Niels Graugaard

Assurance of the legal representatives

Assurance of the legal representatives We assure that, according to the best of our knowledge, these consolidated financial statements convey a true and fair view of the Group’s asset, financing and earnings positions in accordance with the applicable accounting principles, that the Group’s business performance, including its earnings and position, are represented in such a way in the Group management report, which is aggregated with the parent company’s management report, that a true and fair view is conveyed and that the key opportunities and risks pertaining to the Group’s future development are described.

Bochum, March 3, 2009 The Executive Board

Jürg Oleas

Hartmut Eberlein

Niels Graugaard

GEA Group Annual Report 2008 197

Independent Auditors‘ Report

Independent Auditors‘ Report We have audited the consolidated financial statements – comprising the consolidated balance sheet, the consolidated income statement, the notes to the consolidated financial statements, the consolidated cash flow statement and the consolidated statement of changes in equity – and the group management report (aggregated with the management report of the parent company) prepared by GEA Group Aktiengesellschaft, Bochum, for the business year from January 1 to December 31, 2008. The preparation of the consolidated financial statements and the aggregated management report in accordance with International Financial Reporting Standards (IFRSs), as applied throughout the European Union and the supplementary provisions of commercial law applicable in accordance with section 315a (1) of the German Commercial Code (HGB) is the responsibility of the Company‘s management. Our responsibility is to express an opinion on the consolidated financial statements and the aggregated management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with section 317 HGB and the German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (German Institute of Auditors). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the financial position and financial performance in the consolidated financial statements in accordance with the applicable accounting standards and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the internal control system relating to the accounting system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of the enterprises included in the consolidated financial statements, the scope of consolidation, the recognition and consolidation principles used and significant estimates made by the Company‘s management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements of GEA Group Aktiengesellschaft, Bochum, comply with IFRSs, as applied throughout the European Union and the supplementary provisions of commercial law applicable in accordance with section 315a (1) HGB and give a fair presentation of the Group‘s financial position and financial performance in accordance with these provisions. The group management report, which has been aggregated with the management report of the parent company, is consistent with the consolidated financial statements and, as a whole, provides a suitable view of the Group‘s position and suitably presents the opportunities and risks of future development. Frankfurt am Main, March 3, 2009 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft

(Kompenhans) Wirtschaftsprüfer (German Public Auditor)

198 GEA Group Annual Report 2008

(Dr. Buhleier) Wirtschaftsprüfer (German Public Auditor)

Report of the Supervisory Board

Report of the Supervisory Board In the year under review, the Supervisory Board comprehensively performed the duties incumbent on it by virtue of the law, the Articles of Association and the internal Rules of Procedure, dealing in depth with the Company’s position and its business prospects and some special issues. The Supervisory Board provided ongoing advice to the Executive Board on the management of the Company and monitored its conduct of business, based on regular written and oral reports provided by the Executive Board in addition to the consultations at the meetings. Furthermore, the Supervisory Board chairman maintained continuous contact with the Executive Board and with the Executive Board’s chairman in particular who provided him with regular and prompt information on all important developments and imminent decisions. Besides the Supervisory Board chairman, other Supervisory Board members held regular contact with the Executive Board outside meetings to obtain information on the current course of business in order to support the Executive Board with advice. The Supervisory Board was directly involved in all decisions of fundamental and/or material importance for the Company and was comprehensively informed on all relevant aspects of the Company, on the course of business and the position of the Group. The Supervisory Board obtained continuous and thorough information on the order intake, sales, earnings and capacity utilization trends at the Group and its Segments/Divisions and on discontinued operations as well as the financial situation. Any variances of the course of business from the plans and targets were explained to the Supervisory Board in detail on the basis of supporting documents and made plausible to the Supervisory Board. The prospects and strategic development of the Company and its business units, including corporate planning, were extensively discussed and agreed with the Supervisory Board. Special attention was attributed to the risk exposure and the risk management of the Company, specifically against the backdrop of the emerging economic crisis. After thorough examination and comprehensive debates, the Supervisory Board approved and voted on the reports and motions submitted by the Executive Board to the extent that this was required under the law and the provisions of the Articles of Association as well as the Rules of Procedure. Before and in between the meeting dates, the Executive Board provided written reports on material events. The Supervisory Board and/or its committees were informed extensively about projects and plans which called for urgent decision. As far as required, resolutions were adopted by correspondence. None of the Supervisory Board members attended less than half of the meetings.

GEA Group Annual Report 2008 199

Report of the Supervisory Board

Focal Points of the Supervisory Board’s Deliberations Five Supervisory Board meetings took place during 2008. The main issues discussed at the Supervisory Board meeting held on March 11, 2008 were, besides matters relating to Executive Board members, the treatment of the annual financial statements and of the consolidated fi nancial statements for fiscal 2007, the determination of the proposals to be submitted for approval to the Annual General Meeting on April 23, 2008, the status of the divestment projects of Plant Engineering and Ruhr-Zink GmbH and pending acquisition projects. The Executive Board reported on initiatives for closer cooperation between the individual business segments of the Group. Moreover, after thorough preparation, at that meeting the Supervisory Board dealt with the efficiency check of its own performance in the absence of the Executive Board. The Supervisory Board took approving note of a voluntary bonus for the employees to pay tribute to their performance in fiscal 2007. The Supervisory Board meeting held directly before the Annual General Meeting on April 23, 2008 served in particular to prepare the Annual General Meeting. In addition, it dealt with Executive Board matters and the Executive Board reported on the business situation and the targets for the Company’s performance in 2008. The Supervisory Board used the meeting held on June 18, 2008 to deliberate extensively on the future strategy and investment policy (especially with regard to the Division “Mechanical Separation”) based on a comprehensive report provided by the Executive Board. At that meeting, the Supervisory Board was also informed on the status of the divestment projects and approved the issuance of a note loan in the amount of EUR 200 million. The Supervisory Board meeting on September 17, 2008 took place in Berlin where a works inspection at the Refrigeration Division provided an opportunity for the Supervisory Board to familiarize itself on the spot with the production operations and the related issues. At that meeting, the Supervisory Board again consulted with the Executive Board on focal aspects of the strategic alignment and the deriving long-term corporate targets. The restructuring plans for the Pharma Systems Division were presented to the Supervisory Board which approved the capital expenditure plan of Mechanical Separation. Further important items dealt with at the September meeting related to management staff development, the status of the divested Plant Engineering business as well as the destiny of Ruhr-Zink GmbH. Main topics at the meeting on November 25, 2008 were, besides the divestment projects Lurgi and Lentjes as well as possible options for Ruhr-Zink (sale or closure), the earnings trends at the Divisions as well as the mid-term planning of the Group. In this context, the Executive Board also reported on the potential impact of the economic crisis, suitable initiatives for counteraction as well as the fi nancial situation. The Supervisory Board

200 GEA Group Annual Report 2008

Report of the Supervisory Board

approved the budget for fiscal 2009 and the Declaration of Compliance with the German Corporate Governance Code. The Supervisory Board also approved the termination of the share buyback program. The Chief Compliance Officer provided a comprehensive report on his area of responsibility and the further extension of compliance activities.

Work of the Committees The Chairman’s Presiding Committee met on six occasions. Besides the preparation of Supervisory Board meetings, the key topics covered by the Committee were debates on amendments of service contracts for individual members of the Executive Board, current legal disputes of the Group as well as available options for Ruhr-Zink GmbH and, eventually, the consent to that company’s closure. The Presiding Committee approved the plans for restructuring the Pharma Systems Division. Moreover, it also dealt with the Internal Audit’s report on the findings of audits performed in 2007 and the audit plan for 2008. Furthermore, the Presiding Committee approved the extension of the retirement benefit plan to executives of domestic subsidiaries. Further items on the agenda were the reports of the Chief Compliance Officer and the annual renewal of the D&O insurance policy. In between the meetings, the Presiding Committee members discussed projects of significance for the Group with the Executive Board. The Audit Committee met four times. In the presence of the accounts auditor as well as the Executive Board chairman and the CFO, the Audit Committee focused on the annual financial statements and the consolidated financial statements for the 2007 fiscal year as well as the quarterly reports in fiscal 2008. The risks inherent in the divestment process of Plant Engineering were discussed comprehensively. The Audit Committee also dealt with the internal risk control system and the risk exposure situation of the Company. The accounts auditors explained their auditing activities in depth. Another focal activity of the Audit Committee related to the appointment of the auditors as well as the defi nition and monitoring of the audit process including agreement on the auditors’ fees. In addition, the Audit Committee was concerned with the reports of the Internal Audit function and of the Chief Compliance Officer. The respective committee chairmen reported on the committee work at the subsequent plenary Supervisory Board meetings. The Mediation Committee and the Nomination Committee did not have to be convened.

GEA Group Annual Report 2008 201

Report of the Supervisory Board

Corporate Governance The Supervisory Board constantly followed up on the further development of the German Corporate Governance standards. In accordance with the new recommendation in item 4.2.2 of the Code, following a proposal of the Presiding Committee, the remuneration system for the Executive Board members including the main contract elements are now determined by the Supervisory Board in its entirety and reviewed regularly. On November 25, 2008, the Executive Board and the Supervisory Board issued an updated Declaration of Compliance pursuant to § 161 AktG [German Stock Corporation Act] and posted it at the Company’s website, where it can be permanently accessed by the shareholders. GEA Group Aktiengesellschaft complies with all requirements set forth in the current version of the German Corporate Governance Code with just one exception (no performance-related remuneration component for members of the Supervisory Board). Further information on corporate governance can be found in the joint report issued by the Executive Board and the Supervisory Board (p. 70 et seq.).

Annual Financial Statements and Consolidated Financial Statements for 2008 The 2008 annual financial statements of GEA Group Aktiengesellschaft, the consolidated financial statements prepared in accordance with IFRS and the combined management report have been audited by Deloitte & Touche GmbH and have been given their unqualified opinion. The combined management report, the annual financial statements of GEA Group Aktiengesellschaft, the proposal for the appropriation of the net earnings as well as the consolidated financial statements and the audit reports for 2008 were discussed and examined in detail at the meeting of the Audit Committee held on March 3, 2009 and at the meeting of the Supervisory Board held on March 10, 2009 for adopting the annual accounts. The auditors attended both meetings and reported on the procedures applied and the material findings of their audit. They were also available to answer any questions. On the basis of the final results of the examination performed by the Audit Committee and having conducted its own audit, the Supervisory Board agreed with the auditors’ findings at its meeting on March 10, 2009 and found that it had no reservations to make. The Supervisory Board approved the 2008 consolidated fi nancial statements and the annual fi nancial statements of GEA Group Aktiengesellschaft as well as the combined management report. The annual fi nancial statements of GEA Group Aktiengesellschaft have been adopted therewith. The Supervisory Board regards the proposal for the appropriation of the net earnings as reasonable.

202 GEA Group Annual Report 2008

Report of the Supervisory Board

Composition of the Supervisory Board and Executive Board In the year under review there were no personnel changes to the Supervisory Board and its committees. At the meeting held on March 11, 2008 the Supervisory Board renewed the appointment of Mr. Hartmut Eberlein as Executive Board member with effect from December 1, 2008 up until the close of the Annual General Meeting on April 22, 2009. At the meeting on April 23, 2008, the Supervisory Board approved the appointment of Dr. Helmut Schmale as a regular Executive Board member with effect from April 1, 2009 until March 31, 2012 as well as his taking over as CFO from 22 April 2009 in succession to Mr. Eberlein. The Supervisory Board would like to thank the managements, employee representatives, retired directors and, especially, all employees of the companies of the GEA Group for their considerable personal dedication and valuable contribution in fiscal 2008. Together, they all have yielded an excellent result in the 2008 fiscal year.

Bochum, March 10, 2009

Dr. Jürgen Heraeus Chairman of the Supervisory Board

GEA Group Annual Report 2008 203

Directorships

Directorships held by members of the Excecutive Board Jürg Oleas, Düsseldorf / Hausen b. Brugg (Switzerland), CEO – Chairman of the Executive Board COO – Energy and Farm Technology a) LL Plant Engineering AG, Ratingen, Chairman of the Supervisory Board GEA Westfalia Separator GmbH (former Westfalia Separator AG), Oelde, Member of the Supervisory Board (until February 13, 2008) b) Allianz Global Corporate & Specialty AG, Munich, Member of the Advisory Board Deutsche Bank AG, Frankfurt am Main, Member of the Central Regional Advisory Board

Niels Graugaard, Düsseldorf, COO – Process Engineering a) GEA Westfalia Separator GmbH (former Westfalia Separator AG), Oelde, Chairman of the Supervisory Board (until February 13, 2008) b) GEA North America, Inc., Delaware, USA, Member of the Board of Directors Royal GEA Grasso Holding N.V., ‘s-Hertogenbosch, Netherlands, Member of the Supervisory Board GEA Process Engineering A/S, Søborg, Denmark, Chairman of the Supervisory Board Niro-Bola A/S, Søborg, Denmark, Chairman of the Board of Directors (until October 29, 2008)

Hartmut Eberlein, Bochum, CFO – Member of the Executive Board responsible for finance a) GEA Beteiligungsgesellschaft AG, Bochum, Chairman of the Supervisory Board GEA Westfalia Separator GmbH (former Westfalia Separator AG), Oelde, Member of the Supervisory Board (until February 13, 2008)

b) GEA North America, Inc., Delaware, USA, Chairman of the Board of Directors (since February 1, 2008)

GEA Process Engineering China Ltd., Shanghai, China, Member of the Board of Directors (until December 15, 2008) GEA Process Engineering Asia Ltd., Hongkong, China, Member of the Board of Directors (until January 1, 2009) GEA Liquid Processing Scandinavia A/S, Skanderborg, Denmark, Member of the Board of Directors (until June 23, 2008) GEA Process Engineering (India) Private Limited, Vadodara, India, Member of the Board of Directors (until August 21, 2008) GEA Process Engineering S.p.a., Milano, Italy, Chairman of the Board of Directors (until April, 2008) Procomac S.p.A., Sala Baganza, Italy, Member of the Board of Directors (until October 20, 2008) Niro Japan Co. Ltd., Tokyo, Japan, Chairman of the Board of Directors (until December 18, 2008) Tuchenhagen Japan Ltd., Osaka, Japan, Member of the Board of Directors (until December 15, 2008) GEA Process Engineering (S.E.A) Pte. Ltd., Singapore, Member of the Board of Directors (until October 1, 2008) GEA Process Engineering Ltd., Eastleigh, United Kingdom, Member of the Board of Directors (until February 28, 2008) GEA Process Engineering Inc., Columbia, USA, Member of the Board of Directors (until October, 1 2008)

a) Membership of statuory German supervisory boards b) Membership of comparable German and foreign bodies of business enterprises

204 GEA Group Annual Report 2008

Directorships

held by members of the Supervisory Board Dr. Jürgen Heraeus, Maintal, Chairman of the Supervisory Board Chairman of the Supervisory Board of Heraeus Holding GmbH a) Heidelberger Druckmaschinen AG, Heidelberg, Member of the Supervisory Board (until July 18, 2008)

Klaus Hunger, Herne, Works Council of GEA Maschinenkühltechnik GmbH (since August 27, 2008)

Michael Kämpfert, Duisburg, Head of Human Resources at GEA Group Aktiengesellschaft

Heraeus Holding GmbH, Hanau, Chairman of the Supervisory Board Lafarge Roofing GmbH, Oberursel, Member of the Supervisory Board (until May 15, 2008) Messer Group GmbH, Sulzbach, Chairman of the Supervisory Board b) Argor-Heraeus S.A., Mendrisio, Switzerland, Chairman of the Board of Directors

Dr. Dietmar Kuhnt, Essen, Former Chairman of the Executive Board of RWE AG a) Allianz Versicherungs AG, Munich, Member of the Supervisory Board (until April 24, 2008) BDO Deutsche Warentreuhand AG, Hamburg, Member of the Supervisory Board Dresdner Bank AG, Frankfurt am Main, Member of the Supervisory Board

Reinhold Siegers, Mönchengladbach, Deputy Chairman of the Supervisory Board Chairman of the Works Council of GEA Group Aktiengesellschaft

Dieter Ammer, Hamburg, Chairman of the Management Board of Conergy AG a) Beiersdorf AG, Hamburg, Chairman of the Supervisory Board (until April 30, 2008) Member of the Supervisory Board (since April 30, 2008)

Hapag-Lloyd AG, Hamburg, Member of the Supervisory Board HOCHTIEF AG, Essen, Member of the Supervisory Board (until September 9, 2008) TUI AG, Hanover, Member of the Supervisory Board b) COMSTAR-United Telesystems, Moscow, Russia, Member of the Board of Directors (until June 30, 2008)

Conergy AG, Hamburg, Member of the Supervisory Board (until July 31, 2008) Heraeus Holding GmbH, Hanau, Member of the Supervisory Board IKB Deutsche Industriebank AG, Düsseldorf, Member of the Supervisory Board (until November 30, 2008)

Kurt-Jürgen Löw, Ebernhahn Works Council Chairman of GEA Westfalia Separator Production GmbH a) GEA Westfalia Separator GmbH (former Westfalia Separator AG), Oelde, Member of the Supervisory Board (until February 13, 2008)

Tesa AG, Hamburg, Member of the Supervisory Board (until April 24, 2008)

Ahmad M.A. Bastaki, Safat, Kuwait, Executive Director, Office of the Managing Director, Kuwait Investment Authority

Rainer Gröbel, Sulzbach/Taunus, Departmental Head, IG Metall, Management Board a) Schunk GmbH, Heuchelheim, Deputy Chairman of the Supervisory Board

GEA Group Annual Report 2008 205

Directorships

Directorships held by members of the Supervisory Board Dr. Helmut Perlet, München, Member of the Executive Board Allianz SE

Supervisory Board committees of GEA Group Aktiengesellschaft

a) Allianz Deutschland AG, Munich, Member of the Supervisory Board Allianz Global Corporate & Specialty AG, Munich, Deputy Chairman of the Supervisory Board Allianz Global Investors AG, Munich, Member of the Supervisory Board Allianz Investment Management SE, Munich, Deputy Chairman of the Supervisory Board Dresdner Bank AG, Frankfurt am Main, Member of the Supervisory Board b) Allianz Life Insurance Company of North America, Minneapolis, USA, Member of the Board of Directors

Mediation Committee pursuant to § 27 Paragraph 3 of the German Codetermination Act (MitbestG) Dr. Jürgen Heraeus, Chairman Dr. Helmut Perlet Reinhold Siegers Klaus Hunger Presiding Committee Dr. Jürgen Heraeus, Chairman Dr. Helmut Perlet Reinhold Siegers Rainer Gröbel Audit Committee

Fireman‘s Fund Ins. Co., Novato, USA, Member of the Board of Directors Allianz of America Inc., Novato, USA, Member of the Board of Directors Lloyd Adriatico S.p.A., Triest, Italy, Member of the Board of Directors (until January, 2008) Allianz S.p.A., Mailand, Italy, Member of the Board of Directors

Dr. Dietmar Kuhnt, Chairman Dr. Jürgen Heraeus Kurt-Jürgen Löw Joachim Stöber Nomination Committee Dr. Jürgen Heraeus, Vorsitzender Dr. Dietmar Kuhnt Dr. Helmut Perlet

Joachim Stöber, Biebergemünd, Executive Secretary to the Executive Board of IG Metall a) Pierburg GmbH, Neuss, Deputy Chairman of the Supervisory Board (until August 11, 2008) Rheinmetall AG, Düsseldorf, Deputy Chairman of the Supervisory Board

Louis Graf von Zech, Frankfurt am Main, Member of the Supervisory Board of BHF-Bank Aktiengesellschaft a) Cocomore AG, Frankfurt am Main, Member of the Supervisory Board ZRT/Zertus GmbH, Hamburg, Deputy Chairman of the Supervisory Board b) BHF-BANK International S.A., Luxemburg, Chairman of the Supervisory Board (until June 30, 2008) BHF-BANK Jersey Ltd., United Kingdom, Mitglied des Board of Directors (until June 30, 2008) Frankfurt-Trust Investment-Gesellschaft mbH, Frankfurt am Main, Deputy Chairman of the Supervisory Board (until May 31, 2008) a) Membership of statuory German supervisory boards b) Membership of comparable German and foreign bodies of business enterprises

206 GEA Group Annual Report 2008

GEA Group Annual Report 2008 207

The GEA Group word wide

The GEA Group word wide North America 2,363 746.1 million

Europe (excl. CIS) 15,374 2,535.9 million

CIS 244 295.7 million

Asia (excl. Middle East) 1,780 729.2 million

Latin America 659 296.6 million

208 GEA Group Annual Report 2008

Africa 410 179.2 million

Middle East 247 262.4 million

Oceania 250 133.9 million

Quarterly key figures

Quarterly key figures

Q1

Q1

Q2

Q2

Q3

Q3

Q4

Q4

2008

2007

2008

2007

2008

2007

2008

2007

2008

2007

451.8

424.3

385.9

373.2

397.1

364.0

410.8

829.6

1,645.6

1,991.2

Order intake (EUR million) Energy and Farm Technology

924.9

845.9

889.4

801.6

828.9

819.9

703.4

964.8

3,346.6

3,432.1

Core segments

Process Technology

1,376.7

1,270.3

1,275.3

1,174.8

1,226.0

1,183.9

1,114.2

1,794.4

4,992.2

5,423.4

GEA Group

1,382.1

1,267.9

1,265.0

1,196.1

1,223.5

1,160.5

1,113.3

1,792.5

4,983.9

5,417.0

363.2

339.2

447.1

409.0

478.7

403.5

529.6

496.6

1,818.6

1,648.3

Revenue (EUR million) Energy and Farm Technology Process Technology

757.4

596.7

844.6

745.6

831.9

854.8

904.2

961.9

3,338.1

3,159.0

Core segments

1,120.6

935.9

1,291.6

1,154.5

1,310.6

1,258.3

1,433.8

1,458.5

5,156.7

4,807.2

GEA Group

1,127.2

957.5

1,295.8

1,166.7

1,318.0

1,264.3

1,438.0

1,467.5

5,179.0

4,856.0

Energy and Farm Technology

20.1

17.4

37.6

30.0

48.9

37.1

59.0

55.4

165.5

139.8

Process Technology

62.5

43.8

85.7

68.4

91.9

70.7

129.5

118.8

369.7

301.7

EBIT (EUR million)

Core segments

82.6

61.1

123.3

98.4

140.8

107.8

188.5

174.2

535.2

441.5

GEA Group

76.1

59.3

119.3

90.2

131.8

98.5

177.1

153.1

504.2

401.1

EBIT-Margin (%) Energy and Farm Technology

5.5

5.1

8.4

7.3

10.2

9.2

11.1

11.2

9.1

8.5

Process Technology

8.3

7.3

10.2

9.2

11.1

8.3

14.3

12.3

11.1

9.6

Core segments

7.4

6.5

9.5

8.5

10.7

8.6

13.1

11.9

10.4

9.2

GEA Group

6.5

6.2

8.2

7.7

10.0

7.8

12.3

10.4

9.7

8.3

GEA Group Annual Report 2008 209

Imprint

Publisher

GEA Group Aktiengesellschaft Corporate Communications Dorstener Straße 484 44809 Bochum · Germany www.geagroup.com

Design

www.kpad.de

Photographs

Page 6:

Hicom

Page 12 (Center): Laif Page 15:

Heiko Preller

Page 68 (Center): Stuttgart Marketing GmbH GEA Group Aktiengesellschaft

Page 80 (Center): Corbis

Annual Report 2008

All other photographs: GEA Group Aktiengesellschaft

This annual report is a translation of the German original.

Title

Only the German version is legally binding.

Air cooling of power plants saves resources The title page shows the surface structure of an Alex fi nned tube. Alex fi nned tubes form the core components of the GEA air-cooled condensers, which are used around the world for condensing and recirculating steam from power plant and process applications. Tougher requirements concerning the careful management of scarce water resources result in the increased use of air-cooled condensers in the power plant and process industries. With almost 90 years of experience in industrial air-cooling, GEA is well positioned to master the challenges this industry presents. GEA manufactures ALEX air-cooled condensers in China, Germany and also in Mexico, beginning in spring of 2009.

This Annual Report includes forward-looking statements on GEA Group Aktiengesellschaft, its subsidiaries and associates, and on the economic and political conditions that may influence the business performance of the GEA Group. All these statements are based on assumptions made by the Executive Board using information available to it at the time. Should these assumptions prove to be wholly or partly incorrect, or should further risks arise, actual business performance may differ from that expected. The Executive Board therefore cannot assume any liability for the statements made.

210 GEA Group Annual Report 2008

Financial Calendar April 22, 2009

Annual Shareholders‘ Meeting for 2008

Mai 5, 2009

Quarterly Financial Report for the period to March 31, 2009

Juli 30, 2009

Half-yearly Financial Report for the period to June 30, 2009

Oktober 29, 2009

Quarterly Financial Report for the period to September 30, 2009

The GEA Group share: Key data SIN

660 200

ISIN

DE0006602006

Reuters code

G1AG.DE

Bloomberg code

G1A.GR

Xetra

G1A.DE

GEA Group Aktiengesellschaft Dorstener Str. 484 44809 Bochum Germany www.geagroup.com

Corporate Communications Tel.

+49 (0) 234 980-1081

Fax

+49 (0) 234 980-1087

Email

[email protected]

Investor Relations Tel.

+49 (0) 234 980-1490

Fax

+49 (0) 234 980-1087

Email

[email protected]

A

L

Accounting policies .......................................... 90

Leasing .......................................... 129, 163, 183

Acquisitions ......................... 3, 24, 106, 122, 135

Litigation ........................................ 57, 108, 184

Appropriation of profit ............................. 52, 181 At-equity ....................................................... 136

M Materials.......................................... 27, 101, 173

C

Minority interest ............................................ 146

Capital expenditure.......................................... 67 Cash and cash equivalents ............................. 114 Cash flow statement ........................................ 87

N

Corporate governance ............................. 70, 202

Net position ..................................................... 41

Currency risk............................................ 60, 109

Non-current financial liabilities ....................... 161

Current financial liabilities .............................. 161

O D

Obligations .......................... 30, 43, 67, 104, 147

Deferred taxes ................................. 44, 101, 178

Other expenses .............................................. 172

Derivative financial instruments ...................... 168

Other income................................................. 171

Discontinued operations .......................... 30, 118

Other liabilities ....................................... 104, 165

Dividend ............................ 2, 16, 42 ,52 ,67, 181

Other provisions............................................. 149 Outlook ....................................................... 4, 65

E Earnings per share (EPS) ..................... 10, 40, 181

P

Economic environment ............................. 31, 65

Pension obligations .................. 75, 103, 107, 152

Environmental protection ................... 20, 28, 148

Percentage-of-completion method ......... 102, 108

Equity ...................................... 88, 100, 114, 144

Procurement .................................................... 27 Productivity ............................................ 3, 26, 66

F Factoring ....................................................... 101

R

Financial income ........................................ 41, 49

R&D ........................................... 26, 48, 105, 172

Free cash flow.............................................. 3, 41

Rating ............................................................ 117 Remuneration ........................ 24, 67, 70, 74, 159 Risk management ............................ 55, 109, 199

G GEA Performance Share Plan ... 10, 47, 52, 72, 159

S Segment reporting ......................................... 146 Share performance ............................ 8, 116, 146

I

Sustainability.................................................... 28

Income taxes.................................................. 177 Intangible assets ........................ 87, 98, 132, 134 Investor relations.............................................. 10

T Tangible assets ................................. 95, 128, 173 Treasury shares......................................... 53, 144